What is a Co-borrower on a Mortgage?

what is a co-borrower

Last Updated on 09/08/2017 by GS Staff

[otw_shortcode_dropcap label=”A:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] All mortgages will at least have one borrower who is responsible for repayment of the loan and will take title (ownership) to the property. When an additional borrower is added to the mortgage, this person is consider a co-borrower.

For example, let’s assume there is a married couple named Sam and Alex Smith who wish to jointly apply for a mortgage. Sam is the breadwinner so their loan officer decides to list him first on the application as the borrower. Alex is then listed second on the application as the co-borrower.

Both the borrower and co-borrower are responsible for repayment of the mortgage. They will both be qualified for the mortgage with their income, assets, credit, and other potential loan documentation that may be required.

Co-Borrower Benefits

It can be beneficial to have a co-borrower on a loan because you can use both the borrowers’ income, assets, and credit for qualification. For example, if the borrower makes $5,000 per month and the co-borrower makes $5,000 per month, they would be qualified for the loan using a total of $10,000 monthly income. Essentially, this gives the two borrowers the ability to obtain a higher mortgage.

Potential Co-Borrower Disadvantages

A co-borrower can also negatively affect a loan approval. Let’s say the borrower has an 800 credit score from wisely managing his credit through the years. However, the co-borrower has a judgement and foreclosure listed on her credit report with a 450 credit score. The lender will likely have a problem issuing a mortgage to these people because of the co-borrower’s past use of credit. It is possible in some cases to remove a borrower during the underwriting process to see if the loan will work with just one borrower.

Co-Borrower vs. Co-Signer

People often think that a co-borrower is the same as a co-signer. This is not the case. A co-borrower has the intention to occupy and take ownership of the subject property through the title in most cases. The borrower and co-borrower are often husband and wife who both take responsibility for the mortgage repayment.

A co-signer does not intend the occupy the property or take ownership. They are used as a way to help the borrower qualify for the mortgage. If the borrower fails to pay the mortgage, the co-signer is responsible for repayment. As an example, the co-signer  may be a parent who is helping her son (the borrower) obtain a mortgage. The parent won’t live with her son, but she will help him obtain the mortgage.

Image Credit: Nick Youngson