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Adding A Co-Applicant To Your Mortgage Application
March 3, 2022 | Posted by: Matt Broom-Hall
Thanks to tighter mortgage qualification rules and higher-priced real estate - it’s not always easy to qualify for a mortgage on your own merits.
You may very well have a great job, a decent income, a good down payment and perfect credit, but that still may not be enough.
When a lender crunches the numbers, their calculations may indicate too much of your income is needed to service core homeownership expenses such as your mortgage payment, property taxes, heating and condo maintenance fees (if applicable).
In mortgage-speak, this means your debt service ratios are too high and you will need some extra help to qualify. But you do have options.
Adding another person to your application can give you the boost you need. A co-applicant is someone who applies with you, giving underwriters an extra profile to consider as they decide whether to approve you for home financing. Read on to learn whether adding a co-applicant is the right next step for you.
What is a co-applicant?
A co-applicant is a person who’s considered along with the primary applicant in the underwriting and approval process for a loan or other form of financing. Lots of forms of financing accept co-applicants, including home loans, car loans, commercial property loans, and personal loans.
Co-borrower vs. co-signer
Terms like “co-borrower,” “co-applicant,” or “co-signer” can feel like they mean the same thing, but there are a few important distinctions you should know.
Co-borrowers share equally with you on financing terms. Both people take on responsibility for making regular payments, and both have an ownership claim on the house.
When I work with co-applicants, we’re talking about a co-borrower arrangement. Both parties are listed on the home’s title and receive access to funds. Our underwriters give both co-applicants equal consideration
Co-signers are acting as a guarantor. They promise to pay back the loan if you can’t. If you’re concerned about your credit score, a co-applicant’s stellar credit could make a big difference in the types of mortgages you qualify for.
If all goes well, a co-signer won’t have to do anything after signing the application documents. They don’t access the funds, and regular payments are the borrower’s responsibility. If you default on a loan, though, debt collectors can demand that your co-signer pay the debt. Even if you file for bankruptcy, your co-signer may still be on the hook to pay.
Ultimately, what you need to decide with your co-applicant is: Who will have access to the funds after approval? Who will be responsible for making any required payments on time? Being clear from the start will help you both feel more comfortable moving forward.
Who can be a co-applicant
Some lenders only let spouses and family be co-applicants. A parent might help their child with their first mortgage, for example, because the child might not have a high enough credit score to qualify.
In other cases, you can ask a trusted friend or a business partner to be a co-applicant. Start by checking with me first to see who can be accepted. Then, consider which people in your life have strong credit and financial habits, and who would be willing to help you apply for home financing.
anyone on the title of your home needs to be added to your funding application as a co-applicant and will add their signature to the final term sheet for financing. In other words, they have an ownership stake in the house alongside you. A spouse, parent, or someone else who has a strong connection to your home and family life already might be a good fit.
What makes a good co-applicant?
When you’re choosing a co-applicant, you’re looking for someone lenders can trust. Typically, that means choosing someone with great credit and a healthy income. Excellent credit tells lenders this is someone who can handle debt responsibly. High income is a good sign that the co-applicant will have funds on hand, if they need them.
On a personal level, a good co-applicant is someone you can trust, and someone you can talk to openly about money. You need to be able to communicate clearly so you can make a strong financial plan together and tweak it as needed along the way.
Benefits of applying with a co-applicant
There are several major benefits for you if you have someone willing to be a co-applicant:
1. Increased chance of approval: Having someone else’s top-notch credit to back you up means a better chance you’ll hear, “Congratulations! You’ve been approved.”
2. Lower interest rate: The more favorable your application, the better terms you might be eligible for.
3. Higher max purchase price: In other words, more money! An application with two incomes to draw from can afford a more valuable house than one income alone.
- 4. Potential credit benefits: A history of paying loans on time is a big factor in determining a credit score. Stay on top of payments, and you and your co-applicant may both see a credit score increase. Keep in mind that this benefit depends on your good financial habits. If you don’t make payments on time, both of your credit scores could take a hit.
What to expect when applying with a co-applicant
Ready for an inside look at how I review your application? Here’s what happens once you get started.
Standard credit application check
Underwriters look at all applicants’ credit scores and credit profiles. Your past experiences with credit play a major role in how future lenders work with you. High credit scores and profiles full of timely payments usually mean you can expect favorable terms
When you’re making any major financial decision, it’s best if you can work with a broker like me, who will take you step-by-step through the process. That way, you’ll have clear insight to make informed choices that are best for you.
While you’re working on your application, I can help you add someone. Need to take someone off the application? I can also help you remove a co-applicant and update your application to review your income only.
After you fill out the application with your co-applicant’s contact details, I’ll send them an email to complete their part of the application. Later, you'll both need to sign the final closing documents.
Co-applicants can help you leap toward your next big financial milestone if you choose them wisely. Going in on home financing together is a significant decision that will affect both of you for years to come. The right co-applicant, and the right lender, can partner with you to build a stronger foundation for the next step in your homeownership journey.