Here’s What It Means to Cosign a Mortgage
With soaring home prices and tighter mortgage lending requirements, many prospective homeowners (especially first-time buyers) may struggle to qualify on their own — that’s where a mortgage cosigner can help.
A cosigner shares the financial responsibility for a loan without owning the home. This strategy can open doors for a homebuyer to receive better approval chances and a higher loan amount, but also carries significant risks for the cosigner. In this article, we’ll explore how mortgage cosigning works, when it makes sense and what both borrowers and cosigners should know before taking this step.
How cosigning a mortgage works
Cosigning a mortgage typically comes into play when a homebuyer can’t qualify for a loan on their own due to limited income, too much debt or insufficient credit history. By adding a mortgage cosigner, the buyer can strengthen their loan application and meet lender requirements.
Technically, a cosigner is considered a co-borrower on the mortgage note (or deed of trust), meaning they are fully liable for the loan payments. However, their name doesn’t appear on the property’s title, so they don’t have any legal ownership or occupancy rights.
When you agree to cosign a mortgage, you’re taking on a serious financial responsibility. In the lender’s eyes, a mortgage cosigner is just as responsible for the loan as the main borrower. While you’re not buying the home or living in it, you’re legally promising to repay the loan if the primary borrower falls behind on their mortgage payments. And if the borrower misses payments, the lender can pursue collection from either you or the borrower.
Who can cosign a mortgage?
Anyone who meets the lender’s credit, income and debt requirements — and is willing to take on the financial risk — can serve as a cosigner.
Common examples include:
- Parents. In cases when adult children (typically first-time homebuyers) don’t yet have a strong credit profile or sufficient income, it’s common for parents to cosign a mortgage on their behalf.
- Spouses. If one spouse has a significantly better credit profile or income than the other, cosigning can be a strategy to qualify for a larger loan amount or better terms.
- Family members. Relatives, including siblings, aunts, uncles or grandparents, can also cosign, provided they meet the lender’s requirements and understand the legal obligations.
- Close friends. Though less common, a trusted friend or even a business partner with strong credit and steady income may agree to cosign.
Who can’t cosign a mortgage?
There are exceptions to who can cosign. Anyone with a financial stake in the deal — such as the home seller, builder, real estate agent or broker — can’t serve as a cosigner. Lenders view these individuals as “interested parties to the transaction,” which creates a conflict of interest and violates underwriting rules.
When would you need a cosigner?
A cosigner can help if:
- Your debt-to-income (DTI) ratio is high. If your monthly debts take up too much of your income, a cosigner’s income and debt can help balance the equation and improve your approval odds.
- You aren’t eligible for a high enough loan amount. Adding a cosigner with a strong income can increase the total qualifying income on your application, potentially allowing you to borrow more.
- You have limited or nontraditional employment history. Most lenders require at least two consecutive years of steady income. If you’re newly employed or self-employed — especially in a field with variable income — a cosigner with a stable, salaried job can help strengthen your application.
- You have a thin credit file. If you have little or no credit history, a cosigner with an established credit profile can help you meet lender requirements.
A cosigner won’t help if:
-
You can’t qualify for a conventional loan because your credit is too low. If your credit score falls below a lender’s minimum, a cosigner’s good credit won’t override that disqualification.
- You’re hoping to bypass lender requirements. A cosigner can’t compensate for serious underwriting red flags — like recent bankruptcies or foreclosures — that make you ineligible for certain loan programs.
At first glance, co-borrowers and cosigners might seem the same — both are added to a mortgage application to strengthen the main borrower’s approval chances. But there are key differences in their roles, responsibilities and rights.
- A co-borrower applies for the mortgage jointly with the primary borrower. This is common with spouses or partners buying a home together. Both co-borrowers share equal financial responsibility for repaying the loan, and each has an ownership interest in the property. Both of their names will appear on the mortgage note (or deed of trust) as well as the home’s title, meaning they’re equally accountable for the debt and have legal rights to the home.
- A cosigner, on the other hand, agrees to back up the loan financially but has no ownership rights to the home. Their name is on the mortgage note — making them liable for the loan if the primary borrower defaults — but not on the property title. Cosigners typically don’t live in the home; their primary role is to help the borrower get approved for their home loan.
Note: A mortgage cosigner is sometimes referred to as a “non-occupying co-borrower.” Some lenders make a clear distinction between cosigners and non-occupant co-borrowers, while others use the terms interchangeably.
Which loan programs allow a mortgage cosigner?
Conventional loans
Conventional loans (mortgages that aren’t government-backed) allow borrowers to use a mortgage cosigner. The cosigner must meet standard lending requirements and can’t have a financial interest in the home sale. Both the primary borrower and cosigner will be equally responsible for the loan, and the cosigner’s income and assets can be used to meet the lender’s eligibility requirements.
FHA loans
FHA loans, which are insured by the Federal Housing Administration, allow cosigners to help borrowers qualify for a mortgage. Similar to conventional loans, the cosigner can’t have a financial interest in the transaction. However, FHA guidelines offer an exception for family members. For example, if the seller is a relative, they may be allowed to act as a cosigner under certain conditions.
Cosigners on an FHA loan are equally liable for repaying the mortgage and must sign the loan note, but they won’t have ownership rights to the property. In addition, the FHA requires that cosigners, as well as non-occupying co-borrowers, be either U.S. citizens or maintain a principal residence in the United States. All cosigners must meet FHA’s minimum eligibility standards for credit, income and DTI ratios.
VA loans
VA loans, backed by the U.S. Department of Veterans Affairs, have more restrictive rules regarding cosigners. Only a spouse or another eligible veteran can cosign a VA loan without affecting the loan’s entitlement benefits and zero-down-payment option. If the cosigner is not the veteran’s spouse or an eligible veteran themselves, the loan is considered a “joint VA loan,” which requires special approval and may limit the loan’s favorable terms.
USDA loans
The U.S. Department of Agriculture (USDA) offers two USDA loan programs for low- and moderate-income borrowers purchasing homes in eligible rural areas. The USDA guaranteed loan program, offered through private lenders, doesn’t allow non-occupying cosigners — everyone on the loan must live in the home.
However, USDA direct loans, which are funded directly by the USDA for very-low-income borrowers, may allow a cosigner who doesn’t plan to occupy the property, as long as they meet credit and income requirements.
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Pros and cons of cosigning a mortgage
Pros
- Increased buying power. Adding a cosigner’s income can help the primary borrower qualify for a higher loan amount, allowing them to purchase a more expensive home than they could afford on their own.
- Improved approval chances. If the borrower’s credit, income or employment history falls short, a cosigner with stronger qualifications can help meet lender requirements and improve the likelihood of loan approval.
- Better loan terms. In some cases, a cosigner with excellent credit and low debt could help the borrower qualify for a lower mortgage rate or more favorable loan terms, though this isn’t guaranteed.
- Wealth-building and credit-building potential. Helping a loved one secure homeownership can contribute to their long-term financial stability. If the loan is paid on time, it can also positively impact both the borrower’s and cosigner’s credit history.
Cons
- Financial responsibility and burden. Cosigners are legally obligated to repay the mortgage if the primary borrower defaults on the loan. Missed payments can lead to serious financial consequences, including collections or foreclosure actions.
- Impact on credit score and history. The mortgage will appear on the cosigner’s credit report, affecting their DTI ratio and potentially lowering their credit score if payments are late or missed.
- Limits the cosigner’s borrowing power. Because the mortgage debt counts against the cosigner’s DTI ratio, it may reduce their ability to qualify for other loans or credit lines until the loan is paid off or refinanced.
- Potential relationship strain. Cosigning a mortgage can create tension or stress in personal relationships, especially if financial difficulties arise and the cosigner is called upon to make payments.
Alternatives to using a mortgage cosigner
If adding a cosigner isn’t an option — or you prefer to qualify on your own — there are other strategies that can help you meet mortgage requirements:
- Down payment assistance programs. State and local housing agencies, as well as certain lenders, offer down payment assistance (DPA) programs that provide grants or low-interest loans to cover down payment and closing costs. By reducing the upfront cash you need, DPA programs can help you qualify for a home sooner without needing a cosigner.
- Buy a multifamily home and use projected rental income to qualify. Purchasing a two- to four-unit property and renting out the extra units can boost your qualifying income. Lenders may allow you to use a portion of the expected rental income to help meet debt-to-income (DTI) ratio requirements, making it easier to qualify for a larger loan.
- Choose a loan program that permits “boarder” income. Some programs — like FHA loans, Fannie Mae HomeReady® and Freddie Mac Home Possible® — allow borrowers to count income from a roommate or family member who’ll live with them, often referred to as “boarder income.” If you have a long-term housemate who contributes to housing costs and can document past payments, this additional income may help you qualify.
- Compare lenders and loan programs. Government-backed loan programs (including FHA loans) are designed for borrowers with lower credit scores and smaller down payments. In addition, some lenders offer bad credit home loans with more flexible requirements, although you may pay increased loan costs and higher interest rates.
Frequently asked questions
Yes, cosigning a mortgage affects your credit history and score. As a cosigner, you’re legally responsible for the loan, which means the mortgage will appear on your credit report just like it does for the primary borrower — and any missed or late payments will negatively impact your credit score. On the flip side, if the loan is paid on time, it can help strengthen your credit history.
Yes, cosigning a mortgage affects your DTI ratio. Even if you’re not making the monthly payments, lenders consider the mortgage as part of your financial obligations when calculating your DTI. This can make it harder to qualify for new credit like auto loans or another mortgage, since you’ll appear to be carrying more debt.
Yes, you can cosign a mortgage even if you already have an existing home loan. However, lenders will evaluate your total financial picture — including your current mortgage — to ensure you meet their income and DTI ratio requirements. As long as you can demonstrate sufficient income to cover both loans, you may be eligible to cosign.
While there’s no strict legal limit, underwriting systems and lender policies often cap the number of borrowers for practical reasons. Many lenders allow up to four people, including cosigners, to be listed on a mortgage application. However, some loan types may have tighter restrictions.
In most cases, cosigners aren’t on the home’s title, as they don’t have ownership rights to the property. Their name appears only on the mortgage note, which means they’re legally responsible for the loan but have no claim to the home itself.
Removing a cosigner from a mortgage usually requires refinancing the loan in the primary borrower’s name only. Some lenders or loan types may allow a loan modification or another avenue to remove a cosigner if the borrower can demonstrate financial stability.
If the primary borrower defaults on the loan, the cosigner becomes fully responsible for the mortgage payments. The lender can pursue collection efforts — including late fees, credit reporting and even foreclosure — against either the borrower or the cosigner.
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