Private mortgage insurance (PMI) can be an expensive requirement for your home loan, as it adds more to your monthly payment costs. This is a safeguard that your lender will take out to cover a portion of the amount you borrowed in case you default. Up Next: P.I.T.I.: Understanding The Parts Of Your Mortgage Payment […]
When Would I Need A Co-Borrower & Who Should I Choose?
Making the decision to purchase your own home is a huge choice that should not be taken lightly. There is a lot of budgeting and other preparations you need to undergo to understand how much you can afford to borrow. If you find that you have less than perfect credit or not enough income, consider using a co-borrower for your home loan.
A Co-Borrower Is Not A Co-Signer
It’s important to remember that a co-borrower is different from a co-signer. A co-borrower is a co-owner and shares in your ownership of the property. Their name is on the title along with yours.
A co-signer does not have interest in the property but is financially responsible for paying off the mortgage alongside you. However, if you do not make your monthly payments, the co-signer cannot take possession of the property.
Co-Signer Should Be Reliable & Trustworthy
When choosing a co-borrower, you will need to choose someone who you can trust that is financially reliable and stable. Most commonly, a co-borrower is a spouse or partner with whom you are purchasing the property with. Talk with your chosen co-borrower before you get a loan to work out a budget and make sure both of you understands the financial responsibility.
When co-borrowing with a trusted party, remember that both of you are negatively affected if there is a failure to make the monthly payments. This could mean a hit to your credit score, and increased late payments which could lead to foreclosure.
When You Need Additional Assets
A co-borrower may be necessary when you need additional assets like credit and income. A co-borrower’s good credit and income can supplement yours, which the lender will take into consideration alongside yours.
Remember to have all necessary documents ready to give to your lender so they can determine you and your co-borrower’s qualifications for being accepted for a loan. These documents will include proof of income, assets, bank statements, proof of identify, among others.