Perhaps you’re trying to purchase a home in the Dallas Metro area, but your credit isn’t the best or you need a co-signer for some other reason. Regardless, it’s important to understand what this means for yourself and the co-signer before you jump in. Our Dallas real estate professionals have included information below about the various requirements of lenders, types of co-signers, and when you should use one.
Basically, there are two types of co-signers – occupant and non-occupant co-borrowers. An occupant co-signer will live in the home, and a non-occupant co-signer will not. There are certain lending requirements for occupant co-borrowers; for example, the conforming loan must require a down payment of at least five percent in order for a co-signer to be allowed. Conforming loans are those up to $417,000. For those loans with a down payment of less than 20 percent, five percent of the down payment must come from the occupant co-signer. There are several requirements for occupant co-borrowers, so it’s best to consult with a local lender who can supply you with all of the information and provide guidance/advice.
Will a co-signer have ownership of the home? Yes, at least partially. Because the name of anyone who is a co-signer must also be included on the title to the home as required by lenders, the co-borrower will be an owner of the home. Occupant and non-occupant co-signers have equal ownership shares to a property if the borrowers take title as joint tenants. In a case where occupant and non-occupant co-borrowers take title as tenants in common, both borrowers can define his/her individual ownership shares to the property.
Are there risks involved for co-signers? There can be. A co-signed mortgage can often prevent a co-signer from being eligible for a business, personal, auto, or other loan. Additionally, occupant and non-occupant co-signers are equally liable for paying the loan, so if the occupant co-borrower makes a mortgage payment late, it could damage the credit of the non-occupant co-signer.
As you can see, having a co-signer can get complicated. While you expect to make your payments on time, it’s important to consider how any mistakes on your part could hurt the co-signer. It’s also important to note that the co-signer will be considered an owner of the home, so keep that in mind. To help make your decision, it’s best to speak with your lender.
At Team Nelson, our Dallas real estate agents want to make the home buying process as simple as possible. Purchasing a home is one of the most exciting events in your life, however it can also be stressful. Let us help!
