Reader question: “My mother was going to co-sign a mortgage for me, because I don’t have much of a credit history built up yet on account of not having any credit cards or loans. But I have good income, steady employment, and plenty of money saved up for my closing costs and down payment. I’m just wondering about the co-signer’s credit score, and how important it is. Does a mortgage co-signer need to have good credit for a loan to go through, when it is being co-signed like mine is?”
Yes, a co-signer can help or hurt your case depending on their credit picture. To understand why, you have to consider the purpose of a mortgage co-signer. A typical scenario is when younger borrowers without a lot of credit history have their parents co-sign a mortgage for them. You might think of this as a form of financial backup. If the primary borrower cannot make the monthly payments for whatever reason, the co-signer is there to support them financially.
Co-signers can also be used when an otherwise well-qualified borrower has insufficient income to qualify for the mortgage loan. In this scenario, the income of the co-signer can be considered as well, increasing the chances for mortgage approval. But this kind of scenario may soon become less common, as a result of new lending rules that require lenders to verify the borrower’s repayment ability.
Both of these scenarios have one thing in common. In both cases, the co-signer has some level of responsibility in the repayment of the loan. The primary borrower, on his or her own, is unable to qualify for a mortgage for whatever reason. So the co-signer puts his or her name on the loan documents as a way of saying “I will back this person up, where the monthly payments are concerned.”
This is where the person’s credit score comes into the picture. Lenders use these scores as a measurement of risk. A higher score indicates a responsible consumer and a smaller risk to the lender. A lower score indicates a borrower who has had issues repaying debts in the past, and is therefore a bigger risk to the lender. If you don’t have much of a credit history built up yet, the lender has little to go on when making these risk-based decisions.
This is where having a co-signer can be helpful. If the co-signer has a good credit history that goes back many years, they are more of a “known quantity” as far as risk is concerned. They have proven their financial responsibility in the past, and it shows up in their credit reports and scores. So it could make the difference between the loan going through, or being denied.
So yes, in most cases a mortgage co-signer needs to have good credit for the same reason the primary borrower does. They are involving themselves in a large debt obligation. They are taking on some degree of responsibility in the repayment of that debt. So they need a record / history of financial responsibility. That’s where the credit report and score come into the picture.
Have you asked your lender about this? Are you working with a loan officer yet? They should be able to tell you what their policies and procedures are, with regard to borrowers and co-signers. They want the loan to go through as much as you do. So it’s in their best interest to give you the information you need to succeed. Be sure to ask about this up front.
Brandon Cornett
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author