Mortgage Co-signer vs Co-borrower: What’s the Difference?

mortgage co-signer

If a bank is on the fence about approving a loan, they may ask the borrower if there is anyone who can share responsibility of the loan. Including multiple people on your loan application can increase your chances of getting the loan accepted. While many people think co-signers and co-borrowers are the same thing, these are two very different roles in the eyes of a lender. To decide which option is best for you and those helping you get the loan, it helps to compare the two roles.

A co-signer is someone who guarantees a loan for someone else. This means that the co-signer is agreeing to take responsibility for paying off the loan in the event the primary borrower fails to do so. With more resources available to pay back the loan, the lender will be more confident in receiving payment. A co-signer does not have title or ownership over any items acquired with the loan.

A co-borrower is one of at least two primary borrowers. For example, if a couple is buying a home together, they can apply for a loan as co-borrowers. Like co-signers, co-borrowers are responsible for the loan even if the other primary borrowers do not meet agreed upon payments. Unlike co-signers, a co-borrower will have an ownership interest in the property being purchased.

While both a co-signer and a co-borrower can help you when it comes to qualifying for a loan, there are some differences in the risks associated with the responsibilities of co-borrowers and co-signers.

It is important to understand as a co-signer that you are essentially taking on an all risk, no reward deal in which you could be responsible for paying off a loan with no benefit to yourself. If you co-sign to help someone buy a car, it’s their car—and if they stop paying on the loan, it is your responsibility to pay for their car. More than just paying the loan balance and interest, you can also be charged for late fees and other charges if the primary borrower has stopped making payments. Co-signing can also negatively impact your ability to borrow or your ability to get preferable terms on new lines of credit.

For co-borrowers, the risk is a little more personal. Because you are combining financial resources with someone else, co-borrowing can allow you to get approved for a loan that is much bigger than you could pay by yourself. Tragic accidents, bad break-ups, and any other number of difficult circumstances can leave you with a loan that is outside of your financial capacity. It can be very difficult to remove someone’s name from a loan, forcing you to sell the shared property or go through a time-consuming refinance in order to pay off the loan.

The bottom line is if you need someone to co-sign or co-borrow in order to secure a loan, you need to make sure it is someone you trust. Communicate fully the responsibilities associated with each role and confirm they feel comfortable adding their name onto the loan application. Keeping up regular communication with this person about the status of the loan can ensure you are on the same page, which is important since they are invested in the mortgage, too.

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