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How to get a home loan

Jim Quist is the president and founder of NewCastle Home Loans. He has 20+ years of mortgage lending experience as a business owner, mortgage underwriter, and loan officer. Jim's goal is to help people buy homes.

Jim Quist is the president and founder of NewCastle Home Loans. He has 20+ years of mortgage lending experience as a business owner, mortgage underwriter, and loan officer. Jim's goal is to help people buy homes.



Can I get a mortgage if I’m already a co-signer?


As a cosigner on a mortgage, you’ve committed to another person’s financial obligation to the loan. You probably cosigned to help out a friend or family member who couldn’t qualify for the loan on their own. But now that you’re looking for a mortgage of your own, your good deed can make it more difficult for you to become a homeowner yourself. 

You can still get approved for a mortgage as a cosigner, but you may need to take extra steps to get there.

Below, we break down the responsibilities you’ve taken on as a cosigner, how it changes your mortgage application, and what you need to do to get approved for your own mortgage.

 

What responsibilities do I have as the co-signer on a mortgage?

When you cosign a loan, you take on all the financial responsibilities as you would for your own mortgage.

With a mortgage, the term “cosigner” usually means a “non-occupant co-borrower.” A “non-occupant co-borrower” is a person who is jointly applying for a mortgage, but they don’t plan to live in the home. Because you’re both borrowers on the mortgage, you (the cosigner) and the primary borrower (the person living in the home) are partners in owning the home. As such, both of you take on the debt. 

Because you’re on the hook for the mortgage, you’re responsible for the monthly payments, too. If the primary borrower misses payments and/or defaults on the loan, you’re responsible for those missed payments. And when you go to apply for your own mortgage, those missed payments will hurt your chances of qualifying for another loan. 

 

How does co-signing affect my credit and debt?

Your credit score and DTI (debt-to-income ratio) are two important factors that play into what type of mortgage you can qualify for. The better your credit and DTI, the better loan terms you’ll receive and the cheaper your monthly payments will be. 

Credit: Cosigning can change your credit in several ways. Since you’ve taken on the same responsibilities as the primary borrower, the additional debt tied to your name could lower your credit score. If the primary borrower misses a payment, your credit score will probably go down. On the other hand, if the primary borrower makes all their payments on time, the positive payment history will improve your credit score.

DTI (debt-to-income ratio): Your DTI tells your lender how much of your income is needed to pay your current monthly debts and, in turn, how much is available for a mortgage payment. Even as a co-borrower, the mortgage payment counts toward your monthly debt, potentially skewing your DTI. 

Generally speaking, you want your DTI at or below 43% of your monthly income. As the primary borrower pays off the loan, your DTI will lower; their payments reduce your total debt over time. But if you look to buy (or refinance?) a home soon after cosigning, your DTI could be over the ideal 43%, and you may struggle to qualify for the loan you need. 

 

How to be a co-signer and still buy your own home.

It’s possible to get your own mortgage, even if you’re already a cosigner for someone else. It may be harder to qualify, but there are three common solutions to boost your chances of approval:

  • Wait at least 12 months to apply. 

Not in a rush to buy? Underwriting guidelines may be in your favor. If the primary borrower pays their mortgage on time for at least 12 months, the mortgage can be omitted from your monthly debt to improve your DTI. 

After 12 months, all you need to do is show complete, on-time payments toward the existing mortgage that come from the primary borrower’s funds or bank account. 

  • Focus on your income. 

If you can comfortably afford the existing mortgage payment, your debts, and a new mortgage, you’re likely to be approved even as a cosigner on another loan. As long as you can show proof of stable and adequate income, your lender will qualify you for your mortgage. 

  • Get removed from the mortgage.

It’s also possible to be removed as a co-borrower from the existing mortgage. To do this, the home must be sold or the mortgage refinanced without you on it.

This does also require that the primary borrower now has enough income and strong enough credit to take on the mortgage themselves. You’ll need to discuss this option with both the primary borrower and a loan officer to see if the qualify, and if refinancing would be a good option.

 


 

At NewCastle, we believe in simplifying the mortgage process and empowering our customers with the knowledge they need to confidently buy a home. As daunting as this process may seem at first, we’re committed to getting your questions answered, and clarifying your path to the home you need. 

Still have questions about renting out your current home? Want to see if your situation fits the process we’ve described above? Ready to get pre-approved. Our team is ready to help! 

Schedule a call today to chat with our industry experts, and receive the one-on-one help your unique situation requires.

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