You like to refinance to get a lower mortgage rate and save a bit from the monthly mortgage payment for the rainy days. By refinancing, you are effectively re-applying to qualify for a new loan. Sadly, your financial circumstances are currently far from perfect or have changed since you last took out your old mortgage and this could lessen your chances of getting the new loan. Enter a mortgage co-borrower to help you qualify for your new loan so you can refinance your old loan. »Are you ready to refinance today?»
Is a Co-Borrower a Co-Signer?
Before anything else, we have to understand the difference between a co-borrower and a co-signer in the context of mortgage loans.
A co-borrower has ownership in the property that secures the loan, in this case, the home. He/she is required to sign the mortgage loan papers and assumes the responsibility for the loan’s repayment. This makes co-borrowers joint applicants, as what lenders call them sometimes. And co-borrowers would appear on the title to the home, too.
On the other hand, a co-signer will assume the liability for the loan in the event the borrower is unable to fulfill his obligation. Despite the co-signer’s obligation to repay the loan, he/she doesn’t have any security interest in the property securing the loan.
Notwithstanding their varying contractual rights and obligations, co-signers and co-borrowers are unified by one purpose: they ensure that the loan will be repaid and thus protect the lender’s interest in the property.
Now, Why a Co-Borrower to Refinance?
Adding a co-borrower helps you refinance when you think you can’t qualify for a loan on your own. Your co-borrower’s qualifications e.g. income, assets and credit history, together with your own, will be used in the lender’s evaluation of your loan application.
»Refinance to today’s low mortgage rates.»
1. (Debt to) Income
The standard debt-to-income ratio requirement for borrowers applying for refinance or purchase loans, in general, is:
- 28% – Total estimated housing-related payments – mortgage principal, interest, taxes, and insurance – should not exceed 28 percent of the borrowers’ total gross income per month.
- 36% – Total debts – mortgage, car and credit cards – should not be more than 36 percent of the borrowers’ total gross income per month.
Putting an additional stream of income from your co-borrower on your loan application will effectively lower the DTI ratio, increase the monthly income, and make the application more appealing to lenders.
2. Credit Score
Sure, a credit score is an important metric that lenders consider. But in cases where there are co-borrowers, the lender would consider the lower of the two three-digit scores.
Assuming you have a credit score of 680 and your co-borrower has a credit score of 670, your lender will take the score of your co-borrower and base its decision from there, including the interest rate that will be imposed on your loan if it gets approved.
»Where to find lenders to refinance?»
Who Can Be Co-Borrowers?
Co-borrowers are usually spouses or partners who act as such in order to qualify for a higher amount of loan, something that they may be unable to do individually.
And if co-borrowers are married or file joint income tax returns, they are required to submit just one copy of the income tax returns for the last two years. However, each has to provide the lender copies of their paycheck stubs for two months.
Other co-borrowers are parents, friends, relatives, or anyone who is willing to share the risk of repaying a mortgage with the borrower.
Interestingly, having a co-borrower on a mortgage is not a requirement. Even more so, there are loan programs like those conventional loans backed by Fannie Mae that do not require co-borrowers to live in the property.
Adding a co-borrower is a flexibility, an option that can be utilized by people who want to refinance but can’t do it by themselves for reasons outlined. If you are in a similar situation and unsure whether adding a co-borrower to refinance increases your chances of getting approved for a mortgage, »click the orange button and hear it straight from the lenders.»