Mortgage Cosigner

My mom has excellent credit, but does not earn much more than me. Can she qualify as a mortgage cosigner?

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Bill's Answer: Answered by Mark Cappel

A mortgage cosigner guarantees payment in case the primary borrower defaults. As such, the cosigner assumes considerable liability. If a person agrees to be a cosigner, he or she should make an agreement with the primary borrower that when the primary borrower's financial picture and credit score improves, the primary borrower will refinance the mortgage (or any loan for that matter) to remove the cosigner.

If you are asked to cosign any loan, step back and review the entire situation. Consigning is not an idle gesture -- it commits you to considerable risk. The lender asked the borrower to find a cosigner because the borrower has either no credit history or one that is disconcerting. If you have questions about your potential liabilities, consult with an attorney in your state.

Qualifying for a mortgage with a cosigner

The FHA requires cosigners to be related by blood or marriage. Assuming your cosigner will not occupy the house with you, the cosigner will become a non-occupying co-borrower. In this case, the lender will use the cosigner's credit score to help you qualify.

However, you as the primary borrower must be able to qualify with your debt-to-income ratio. In other words, your income alone must be enough to cover the payment -- your lender will generally require that the mortgage payment, including taxes and insurance be no more than 33% of your gross income. If you can qualify with your income, then it will be beneficial to have a cosigner on the mortgage with the cosigner's higher credit score.

Qualifying for a mortgage

A mortgage lender wants three things from a potential customer: Steady income, a relatively clean recent credit history, and a debt-to-income ratio of 35% or less. Customers who qualify for a mortgage have all three of these qualities, plus a down-payment.

Start with Mortgage Basics to Know Before You Apply for a Loan. Next, I recommend you download a Uniform Residential Loan Application (Form 1003), complete it, and resume your mortgage shopping. Then, go to the Bills.com mortgage saving center for no-cost, pre-screened quotes from mortgage lenders.

Credit Report

Next, go to AnnualCreditReport.com to get a no-cost, no-obligation copy of your credit report from each of the three major consumer credit reporting companies (commonly called "credit bureaus"). Review your report and dispute any inaccurate listings.

To find out more how your credit score is calculated I recommend you read an article I wrote explaining FICO Score Calculation. This should give you a much clearer understanding of how credit scores work.

Debt-to-Income Ratio

Finally, lenders calculate and analyze your debt-to-income ratio to determine the size of mortgage you can afford. See DTI: Debt-to-Income Ratio Information to learn how to calculate your debt-to-income ratio.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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