No matter how many times you’ve purchased a home, the decision to do so is always a monumental one, and should never be taken lightly. So before you make that decision, you need to ensure your financial situation is up to par, to avoid any potential obstacles with your mortgage application. Think things like your credit score, debt-to-income ratio, and cash reserves. Your financial setting will help you determine if you need a co-borrower or a non-occupying co-borrower (sometimes known as a “co-signer”). And yes, there is a difference.
What is a Co-borrower?
A co-borrower is simply a co-owner. Both your names will be on the title for the home, and the co-borrower is sharing responsibility for the debt with you, the primary borrower. This arrangement is most often used when significant others are purchasing a home together. Typically, the primary borrower has a higher credit rating, though both borrowers’ credit is taken into consideration.
What is a Non-occupying Co-borrower?
A non-occupying co-borrower is similar to a guarantor. They ultimately have no claim on the home – meaning they can’t take actual possession of it – but as a non-occupying co-borrower on the mortgage, they are financially responsible for paying back the loan if the primary borrower is not able to do so.
Reliable & Trustworthy.
When choosing a co-borrower (typically your spouse) or non-occupying co-borrower (typically a family member), you want to ensure that you can trust them to be financially stable and reliable. Discuss your plan with them thoroughly, making sure all details are understood between the two of you, before going in on the loan together. It helps to establish a budget beforehand, and make sure you both understand the financial responsibility you have to each other and the mortgage company. Note as well that both of you will be negatively affected in the event you fail to make your monthly payments – which can lower your credit score and increase the chances of foreclosure.
To reiterate, the significant difference between a co-borrower and a non-occupying co-borrower is that a co-borrower will actually share ownership of the home with you. And if you both have a strong financial standing, you shouldn’t have a problem getting approved for a loan. Simply put, the only difference in the two terms for the mortgage lender would be who is directed to be put in title (ownership) of the home after the transaction is consummated. If you want to know more about when or how to choose a co-borrower, a Guardian Mortgage Professional is always ready to answer your questions.