What Are the Benefits of a Co-Applicant Mortgage?
When you apply for a mortgage you can either apply as the sole borrower or you can apply with a co-applicant for a joint loan. Having a co-applicant might enable you to qualify for a loan that you could not otherwise qualify for by yourself. Therefore, a co-applicant loan may enable you to realize your dream of home ownership.
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Credit Score
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When you apply for a loan, the lender checks your credit score. You cannot get a conventional mortgage if you have a credit score below 620, although you can get a government-insured loan if you have a score of 580 or higher. However, aside from determining whether you meet the minimum loan requirements, your credit score also impacts your interest rate. The higher your score; the lower your rate. If you have a co-applicant with a high credit score, it means you pay a lower rate and therefore have smaller monthly mortgage payments.
Income
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When reviewing your mortgage application, the lender calculates the mortgage payment as a percentage of your gross monthly income. Lenders call this calculation a "housing ratio," and typically your housing ratio cannot exceed more than about 30 percent of your income. Additionally, your total debt payments cannot exceed 40 or 50 percent of your income. If you add a co-signer with high income and low debt levels to your application, you immediately improve the housing ratio and debt-to-income levels and can more easily qualify for a loan.
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Other Benefits
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Many insurance companies give discounts on homeowners insurance to customers who already hold life insurance or automobile policies with the same insurer. You may benefit from a discount on the insurance if the co-owner has policies in place with the insurer. From a liability perspective, you and the co-applicant are equally responsible for paying the mortgage, so if you experience a drop in income, at least you are not solely responsible for making the mortgage payments when you have a co-borrower.
Considerations
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Generally, you can only have a co-applicant on a mortgage if that person also owns the property, although the Federal Housing Administration allows for co-signers who live in but do not own the property being financed. Having a co-signer makes it easier for you to qualify for a loan but only if that co-signer has good credit and a low debt-to-income ratio. Adding a co-applicant with poor credit could disqualify you from obtaining a loan. Additionally, if you rely on the co-signer's income to make payments, if he stops paying the loan at some point, you must contend with foreclosure and the impact that has on your credit score.
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