Do I need a mortgage co-signer if I am self-employed?
A: Because lenders like to see proof of a regular income, it’s sometimes more difficult to get approved for a mortgage if you are self-employed. However, this does not necessarily mean you will need a mortgage co-signer (also called a co-borrower or co-applicant) to assume risk on your behalf.
If you have been self-employed for some time and can provide documented proof of your income through personal and/or business tax returns, you may well qualify for a conventional mortgage.
Many lenders also offer mortgages that don’t require full documentation. With a no-income, no-asset (NINA) mortgage, for example, you don’t have to disclose what you earn or where it comes from. And for a stated-income mortgage, you need to declare the nature of your employment and your typical annual earnings, but you don’t have to provide any documentation to back it up.
To be approved for these low-documentation mortgages, however, you must have an excellent credit rating, and you generally need a substantial down payment. They also carry higher interest rates than traditional mortgages because the lender is assuming greater risk. NINAs are typically priced 1 percent to 3 percent higher than traditional home loans, while stated-income mortgages may be only half a point or so more.
If you are unable to get approved for one of these mortgages or are unwilling to pay the higher rates, you might consider asking someone to be a co-signer. This involves asking another person to share the responsibility of paying back the loan. The co-signer must be able to meet the qualifying requirements that you cannot — for example, having a high credit score or a documented income level.
This isn’t an agreement either of you should enter into lightly. The co-signer on your mortgage will be equally bound to the lender, so if you miss payments or default on the loan, he or she is on the hook. To avoid souring your relationship with a family member or trusted friend, make sure you both understand your obligations.
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