Can’t get a mortgage on your own? Why not add a borrower to your home loan? Getting a co-borrower is a strategic way to get your mortgage loan approved and indeed a more secure pathway to tackling the financial burden of homeownership.
What is a Co-Borrower?
A co-borroweris a someone who shares the responsibility of paying for the home loan with you, while also getting the same ownership rights on the property as you do. That means when you have a co-borrower on the loan and the debt is not paid off, both of your credit scores will take the damage.
Reasons for Adding a Co-Borrower
There are plenty of reasons behind a decision to add a co-borrower to a home loan. It could be that you want to split the bill with your partner, or you decide that your son or daughter should be held responsible for part of the payments because he or she has decided to move in with you.
Whatever the reason is, both parties should understand that the additional person is also given the same property rights by putting his or her name on the papers.
Do I need to refinance to add a co-borrower?
Unfortunately, you have to. Refinancingis required to add or remove a borrower on the loan. Refinancing will revise the terms of the loan, the interest rate, the pay-off date, the payment to be made every month, and the names on the loan. Although renewing the loan by refinancing could be time-consuming, it could be advantageous if the borrower has an excellent credit profile, letting you save on interest.
What requirements do I need to refinance?
You should fill out and submit a new mortgage application. You can file with your existing lender or with a new one, whichever suits your needs. The usual mortgage loan acquisition process will roll and the co-borrower’s profile will be assessed. This includes credit scores, employment status, and lines of credit, among others.
For the property to qualify, it needs at least 20 percent equity if you’re applying with a conventional loan, and 5 percent for FHA loans.
Remember that refinancing isn’t free. Make sure you factor in the amount that it will cost you. Calculate the breaking point and integrate it with your future plans to check if you are not going to lose money by taking out a new loan. Adding a co-borrower would surely legitimize who gets to pay, but before you take this step, it is important to ask first: would it be worth it?
