Can I Have a Co-Borrower or Co-Signer with an FHA Home Mortgage Loan?

Learn what options are available through the FHA mortgage program

When home buyers have a problem getting approved for a mortgage loan or refinance loan due to insufficient income or low credit scores, many buyers look for help from family members. While the simplest way for a family member to help a home buyer is to provide a gift of funds to create a larger down payment, some home buyers can benefit from co-borrowers or co-signers.

What is the difference between a co-buyer and a co-signer?

Because the concept of co-borrowers and co-signers can be confusing, understanding the definition of each type of borrower is important to determine what type of arrangement will work best for your situation.

Co-Borrowers: A Co-borrower is essentially the same as the borrower. For example, when a husband and wife apply for a loan together, one is the borrower and the other is the co-borrower. There is no difference between the two borrowers. Both submit applications and the income, assets, liabilities and credit history for both borrowers are considered in determining whether or not their loan request can be approved.

If one borrower has credit problems and their income is not needed to qualify for the loan, the spouse with the better credit and income to qualify can be the sole borrower for the loan. The non-purchasing spouse may need to sign some documentation at closing depending on whether or not your state is a community property state. Under the FHA program, the other spouse is not allowed under the FHA program to be on the deed if they are not on the mortgage.

Co-Signers: A Co-signer is used when a home buyer needs assistance in qualifying for a mortgage and will get it from someone who will not be an owner of the property. The typical example is a parent who co-signs for a child buying a home. In this scenario, both the parent and the child submit applications together. The income, assets, liabilities and credit history of both borrowers are considered by the underwriter to approve the loan. The co-signer signs the mortgage note and is obligated to repay the loan with the borrower, but the co-signer is not on the deed for the property and has no ownership interest.

Co-signers are best for situations where a home buyer has good credit but does not have enough income or assets to qualify for the loan. For example, a borrower with a 700 credit score who has a 3.5% down payment saved up but has a debt-to-income ratio of 59% could benefit from a parent co-signer who has additional income. The parent co-signer, however, must have sufficient additional income to help the borrower because their income and their debts will be taken into account when underwriting the loan. Your loan officer can calculate whether or not a co-signer will help your situation.

If a borrower has good credit and enough income but is only short on assets for down payment, closing costs and reserves, a parent is better off giving a gift to the borrower. Co-signers need to remember that when they co-sign for another borrower their credit history will include the debt and payment history of the mortgage for which they co-signed.

For a free mortgage pre-approval and for help with your specific borrower, please email us or call us at 1-877-868-2503.

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