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Co-Borrowers with keys in handFollowing the housing market collapse at the end of the last decade, many borrowers have found it increasingly difficult to acquire home mortgage loans, due in part to lender criteria regarding borrower income, assets, and other factors. In response, some borrowers choose to secure mortgage loans by utilizing a co-borrower; by sharing responsibility of both the mortgage loan and the property ownership, co-borrowers can significantly improve a borrower’s chances of obtaining a mortgage loan and have several unique advantages.

What is a Co-Borrower?

By definition, a co-borrower is any additional borrower whose name appears on the documentation for the loan and whose criteria regarding income and credit history are considered for the qualification and approval of the loan.

In other words, borrowers may choose to acquire a mortgage as a collective of two or more; in these instances, the co-borrowers each have equal responsibility over the repayment of the loan, as well as equal title ownership over the property.

Co-Borrower vs. Co-Signer

While similar in many ways, a co-signer plays a slightly different role than a co-borrower. By definition, a co-signer is person who willingly assumes partial accountability over a borrower’s loan, agreeing to accept responsibility of repayment in the event that the primary borrower defaults on the loan. Unlike co-borrowers, co-signers do not hold equal share of the property, and borrowers typically employ co-signers in cases where they cannot qualify to receive the mortgage loan solely by their own criteria. Whereas co-borrowers receive equal rights of ownership on the property, co-signers simply exist to step in if the mortgage cannot be repaid.

Co-Borrower Advantages

  • Combined Assets. With the added assets which a co-borrower brings, borrowers will find their chances of loan approval much improved. While many borrowers cannot qualify due to insufficient funds in savings, mortgage co-borrowers can easily prove to lenders their ability to afford a down payment. Furthermore, this allows borrowers to split the down payment cost, as lenders fundamentally consider all assets of both parties in a co-borrower relationship.
  • Supplemented Income. Using the combined income of a co-borrower, borrowers can potentially secure a much larger mortgage loan than would be available through a single borrower’s income.

Co-Borrower Disadvantages

  • Credit. Unlike a co-signer, a co-borrower will not improve your chances of loan approval in terms of credit; if you have a poor credit score or damaged credit, adding a co-borrower to the mortgage will not help you qualify, even if he or she has impeccable credit. In these situations, the lender will make all evaluations and decisions based on the lowest credit score attached to the loan. As such, if you have poor credit, consider repairing your credit some other way, rather than finding a co-borrower.

Removing a Co-Borrower

If a co-borrower relationship must end for one reason or another, the process of dissolution can be somewhat challenging, although there are two primary methods for dissolving a co-borrower relationship:

  • Refinance the loan.  Borrowers can refinance their old mortgage loan, replacing it with a new loan in which the co-borrower relationship is replaced by a single borrower arrangement. However, in order to perform this transaction, the single borrower must be able to qualify for the refinance loan by him or herself.
  • Sell the home.  Unfortunately, if neither of the borrowers can receive refinance loan approval alone, the co-borrower relationship cannot be ended except through property sale, in which case the home will be sold and the proceeds divided evenly.

All factors considered, a co-borrower arrangement can be a tremendous way to secure a larger mortgage loan or to simply qualify, although they should generally be employed for long-term commitments only, as removing a co-borrower can be difficult.

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