When it comes time for a mortgage, many borrowers choose to buy their home with another person. Whether it is a spouse, parent, sibling or other trustworthy person, it is important to know what to look for in a “purchasing partner,” including the difference between a co-borrower and a co-signer.
A co-borrower will be a co-owner of the property with their name on the title of the home after closing. Their level of involvement also means that the co-borrower's assets, credit history, employment history, and debts are assessed because they are applying for the home loan right along with you.
A co-signer applies for the loan with you (remember they’ll have their credit pulled to assess their ability to qualify for the loan), but their name will not be on the title of the home. They are connected to the loan and are financially responsible, along with you, for paying back the mortgage, but do not have ownership rights to the property.
The main distinction between the two roles mainly pertains to the ownership of the property. A co-borrower has the advantage of co-owning the property with their name on the title of the home. If, for some reason, you are unable to make payments, the co-borrower can assume ownership of the property. A co-signer is not on the title and would not have the same rights.
The most important factor to remember is to choose someone you trust and who is financially responsible. A co-borrower or co-signer can assist you with qualifying for a better interest rate because of debt-to-income ratios or various other factors, but you both carry the responsibility for making sure payments are made on time. If unforeseen circumstances mean your co-borrower or co-signer can’t make their agreed-upon part of the monthly payment, you are still responsible, and the same goes for them.
If your purchasing partner has a higher credit score and you’ve saved for a down payment, this is a perfect example of a team effort that will secure a home loan for you together when you might not have been able to do it on your own. Make sure you take some time to think through who might be a solid, trustworthy co-borrower or co-signer and discuss the options to determine if it is the right fit for everyone. When you’re ready, have a conversation with your Loan Officer to get started!