Co-signing a Mortgage: What it Means & How it Works

A co-signed mortgage is often used as a way to help a family member get on the property ladder.

In this article we’ll look at the benefits of co-signed mortgages, who you can have as a co-signer and why it’s important for all parties to take professional advice before going ahead.

What is a co-signed mortgage and how does it work?

A co-signed mortgage is one that is signed by a guarantor to help get the application approved. It’s often a way to help young people buy their first home with the assistance of, typically, either their parents or grandparents.

The co-signers agree to take on responsibility for maintaining the repayments if the primary borrower can’t afford them, but have no ownership rights and are not named on the deeds.

In many cases, they will be required to put up equity or savings as security.

Co-signed mortgages are slightly more complex to arrange than a standard mortgage but are quite common and, in many cases, can be the difference between buying your first house or not.

Who can co-sign a mortgage?

While it is usually parents who act as co-signatories, this is not the only available route and there are lenders who will accept friends. However, some insist that the co-signer is a close blood relative such as a parent, grandparent or sibling.

Those wanting to use a non-family member as a co-signer will have a smaller pool of lenders which may result in less favourable rates.

Aside from their relationship to the primary borrower, the co-signer will usually need to be on a sound footing financially and have a good credit rating. Essentially, the co-signer ‘props up’ the borrowing power of the primary borrower to reduce the risk to the lender and secure a mortgage.

Co-signers will need to:

• Provide proof of address
• Supply details of income and expenses
• Agree to a credit check

If a co-signer has bad credit, a high debt-to-income ratio, or a low/fluctuating income, this could actually be detrimental to your application.

But co-signed mortgages are not the only way for third parties to help you afford a mortgage or get on the housing ladder. For details of all available options, read our article to getting a mortgage with friends and family.

How a broker can help get you the best deal

There are plenty of lenders prepared to offer co-signed mortgages but, typically, anybody looking for one is doing so because they are unable to get a mortgage approved on their own.

A broker who knows the co-signer mortgage market inside out is best placed to find the right deal according to your individual circumstances.

This can be crucial as co-signed mortgages are seen as a short-term measure and lenders typically require evidence of a realistic exit strategy. Getting the lowest rate possible will help the primary mortgagor build their own borrowing power.

By seeking professional advice from someone who deals with co-signed and guarantor mortgages on a daily basis, you can find out quickly whether this is your best route to home ownership. Get in touch and we can arrange for a broker to contact you straight away who fits this description.

Benefits of having a co-signer

A co-signer can help get a mortgage application over the line when you don’t meet a lender’s requirements.

Mortgage providers are bound by regulations and must lend responsibly. Each lender has their own criteria aligned with their attitude to risk.

Co-signed mortgages can be beneficial in several situations:

• Getting a mortgage on a low income – particularly as a first-time buyer.
• Bridging the gap when you know you can afford the repayments but are ineligible for the loan.
• Gaining approval when you can’t quite afford the repayments, but have parents willing to contribute until you are able to go it alone. In this case, a joint borrower sole proprietor mortgage might be better as you will usually have a greater choice of lenders.
• Lowering your loan to value which may give you access to better rates.
• Getting approved for a mortgage after credit problems.

Using a co-signer if you have bad credit

You may want a co-signer because you have a history of bad credit and want to ‘borrow’ their good credit rating to get a mortgage or secure a better rate. This is a perfectly plausible strategy but makes it even more important that you approach the right lender.

This is because some mortgage providers insist that both borrower(s) and co-signer(s) have a minimum credit score. Choosing the wrong lender and facing rejection can end up just making the application process more difficult as each credit check will leave a mark on your credit file.

Get matched a broker experienced in co-signed mortgages

Co-signing a mortgage is a big decision as it creates a financial link between the borrower and guarantor. But it can be the best route into home ownership given the right circumstances. But how do you work out if it’s right for you?

Our broker matching service will assess your situation (and that of your potential co-signer) before laying out the available options, including a co-signed mortgage, to help you decide which is your best option.

To speak to an advisor who specialises in this niche, call today on 0808 189 2301 or enquire online to arrange a free no-obligation chat.