What Is a Co-Borrower?A co-borrower is any additional borrower whose name appears on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties involved have an obligation to repay the loan. For mortgages, the names of applicable co-borrowers also appear on the property's title. Show Understanding Co-BorrowersCo-borrowers may be used on a loan for a few different reasons. Some loans may involve more than one borrower, such as a mortgage loan issued to married borrowers. In other cases, a co-borrower may be used to help an individual obtain a loan that they were not otherwise able to qualify for on their own. A co-borrower is different than a cosigner in that a cosigner takes responsibility for the debt should the borrower default, but does not have ownership in the property. In a loan application with a co-borrower, all of the borrowers responsible for the loan must complete a credit application. The underwriting process examines the credit profiles of each co-borrower. Generally, terms of the loan will be based on the credit score and profile of the highest credit quality borrower. Since there is more than one debtor authorized for payment on the loan, co-borrower loans typically have lower default risk for creditors. Benefits of a Co-BorrowerA co-borrower can be beneficial for a debtor who is unable to qualify for a loan or favorable loan terms. Having multiple borrowers on a loan can also increase the amount of principal credit approved on the loan. A father, for example, could serve as a co-borrower on a consolidation loan for his son. By applying with a co-borrower, the son may qualify for the loan under his father’s higher credit score while also receiving a low-interest rate that allows him to pay off other high-interest debt. Frequently, co-borrowers are spouses or partners who choose to apply for a mortgage loan together on a house they plan to buy. By using the combined credit profiles and income from two borrowers, the couple can qualify for a larger mortgage than could be obtained individually. They may also receive a lower interest rate since applying with the credit profiles, and income levels of two borrowers make them less of a risk for default to the issuing lender. Both borrowers agree to make the payments on the loan. Both borrowers will also be considered owners of the property on the title when the loan payments are completed. » » How Does a Co-Borrower for a Mortgage Work? When one person applies for a mortgage on their own, that person is the sole borrower on the loan. When multiple people apply for a mortgage together, they are co-borrowers on the loan. In short, a co-borrower is anyone who is listed on the mortgage note other than the first borrower. While a co-borrower is typically a spouse, partner or relative, they can also be a friend or colleague. Co-borrowers usually live in the property being financed together but this is not a requirement. In most cases the co-borrower holds an ownership interest in the property regardless of if they occupy it. Someone listed on the mortgage that does own a stake in the property is usually referred to as a co-signer. Applying for a mortgage with a co-borrower offers potential advantages and disadvantages, depending on the financial and credit profile of the applicant. Continue reading to learn how a co-borrower for a mortgage works so you can determine the best approach for your loan application. What You Should Know About Mortgage Co-Borrowers The Co-Borrower is Legally Responsible for the Mortgage If you are listed as a borrower on the mortgage, you are legally obligated for the loan. This means that you are responsible for the monthly payments and ultimately repaying the mortgage. This legal responsibility applies regardless of if you live in the property being financed or if you are only responsible for a portion of the monthly payment according to an agreement you have with the other borrower. Simply put, all borrowers are viewed equally from the lender’s perspective and held accountable for the mortgage. Because you are responsible for the mortgage, the monthly payment is factored in if you apply for another loan. For example, if you apply for a car loan or another mortgage, the payment is included in your debt-to-income ratio, which can may it more challenging to qualify for the loan. Again, this guideline holds true even if you do not occupy the property. You can only exclude the mortgage payment -- and property tax and homeowners insurance -- from your debt-to-income ratio when you apply for another loan if the other borrower listed on the mortgage has made the monthly payments for at least twelve months. To meet this lending guideline you are required to provide cancelled checks, bank statements or similar documents that show that the other borrower made the mortgage payments on time and in full for at least one year. The Mortgage Affects the Co-Borrower's Credit Score It is important to understand that if you are a co-borrower on a mortgage, the loan appears on your credit report and can impact your credit score. For example, if you miss a payment, become delinquent on the loan or experience another negative credit event such as a default or foreclosure, your credit score may be significantly negatively impacted. This is why it is important that you trust the other borrower on the mortgage and are confident that collectively you can afford the monthly payments. The Co-Borrower’s Income and Debt Are Included in the Mortgage Application The lender includes the monthly gross income and debt expenses for all co-borrowers in the debt-to-income ratio to determine the mortgage you can afford. If your co-borrower has significant monthly income relative to their debt payments, then the co-borrower should enable you to qualify for a higher mortgage amount. However, if the co-borrower has high debt expense relative to their income, then you may be able to afford a higher loan amount on your own as a sole applicant. Use ourTWO PERSON MORTGAGE QUALIFICATION CALCULATORto determine what size loan two borrowers can afford Additionally, if the co-borrower does not plan to live in the property being financed, then their housing expense such as their monthly rent or mortgage payment is also included in your combined debt-to-income ratio when you apply for the loan. This can make it more difficult for you to qualify for a mortgage or reduce the loan amount you can afford. Another point to consider is that some mortgage programs apply applicant income limits. If a co-borrower earns too much money, including them in your application may cause you to exceed the income limit and you may not be eligible for the program. We recommend that you review this point with your lender before you apply for the mortgage. Lenders Average the Middle Credit Score for Both Borrowers to Determine Your Mortgage Terms When two people apply for a mortgage as co-borrowers, the lender averages the middle of each borrower's three credit scores, also known as their median score, to set your loan terms including your mortgage rate. For example, if your scores are 700, 760 and 800 and your co-borrower’s scores are 700, 720 and 740, the lender averages 760 (your middle score) and 720 (the co-borrower's middle score), which is 740, to determine the score used in your mortgage application. If a borrower only has two credit scores, the lender uses the lower score to calculate the average score. If your co-borrower's credit scores are lower than yours, the average score used by the lender is lower than if you applied for the mortgage on your own as a sole applicant. For some mortgage programs, borrowers with a lower credit score pay a higher rate, and vice versa. Paying a higher mortgage rate increases your monthly payment and potentially reduces the loan you can afford. If the credit score used by the lender is too low, you may be ineligible for certain loan programs. This is why a co-borrower with a low score may be a disadvantage when you apply for a mortgage while a co-borrower with a higher score may be helpful. The table below shows mortgage rates and fees for top-rated lenders near you. We recommend that you contact multiple lenders to confirm the loan you qualify for with a co-borrower and to find the most competitive mortgage terms. Shopping multiple lenders is the best way to save money on your loan. % Current Mortgage Rates in San Diego1, California1 as of November 2, 2022 View All Lenders% Data provided by Icanbuy. Payments do not include amounts for taxes and insurance premiums. Read through our lender table disclaimer for more information on rates and product details. The Co-Borrower Does Not Need to Live in the Property As referenced above, you do not need to occupy a property to be a co-borrower on a mortgage -- this is called being a non-occupant co-borrower. Depending on the loan program, however, the lender may limit the debt-to-income ratio for the borrower who lives in the property, which may reduce the maximum mortgage amount you can qualify for. If you are considering having a co-borrower who does not plan to live in the property, make sure to understand how this approach affects the loan you can afford. Property Ownership Requirements for a Co-Borrower Vary To take out a mortgage on a property you live in, you are required to hold an ownership interest in the property. Non-occupant co-borrowers are not required to own the property being financed but many do. As referenced above, if an individual is listed on a mortgage but does not hold an ownership interest in the property, then the individual may technically be a co-signer or guarantor on the loan. Although the difference between a co-borrower and co-signer is somewhat technical, it is important to review this point with your lender when you apply for the mortgage because the qualification guidelines may be different. In conclusion, a co-borrower for a mortgage can be helpful but it may also be disadvantageous in certain situations. We recommend that you consider all your options -- including applying as a sole borrower or with a co-borrower -- to understand the best way to achieve your mortgage goals. Sources "B2-2-01, General Borrower Identity Criteria." Selling Guide: Fannie Mae Single Family. Fannie Mae, July 28 2015. Web. "B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction." Selling Guide: Fannie Mae Single Family. Fannie Mae, June 5 2018. Web. "B3-6-05, Debts Paid by Others." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web. « Return to Q&A Home About the authorHarry Jensen, Mortgage Expert Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. Harry is a licensed mortgage professional (NMLS #236752). More about Harry What rights does a coA co-borrower not only shares legal responsibility for your debt but also has legal rights to your asset, unlike a co-signer. If two people are co-borrowers on a mortgage, for example, both would have their names on the title to the house.
Can a coRemoving a cosigner or co-borrower from a mortgage almost always requires paying off the loan in full or refinancing by getting a new loan in your own name. Under rare circumstances, though, the lender may allow you to take over an existing mortgage from your other signer.
Does a coDoes a co-borrower own the home? Yes. Since the co-borrower is also responsible for making mortgage payments, they share in the ownership of the house.
Does it matter who is borrower and coSince the borrower and co-borrower are equally responsible for the mortgage payments and both may have claim to the property, the simple answer is that it likely doesn't matter. In most cases, a co-borrower is simply someone who appears on the loan documents in addition to the borrower.
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If you are a co borrower on a mortgage
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