A Complete Guide to Buying a House With a Co-Borrower

The vast majority of Americans obtain a mortgage loan when purchasing a home. As a potential homebuyer, you’ll need to decide the best route for paying for a home and take the necessary steps for getting pre-approved for a mortgage if you choose to do so. When submitting a loan application, some buyers choose to add a co-borrower to their mortgage application.

Adding a co-borrower can have pros and cons, so it’s important to know what to expect if you decide to do this. Read on for everything you need to know about adding a co-borrower to your loan application and your mortgage loan.

Defining a Co-Borrower

Co-borrowers can play a vital role in the process of applying for a loan during a real estate transaction. In order to understand the role a co-borrower can play, it’s helpful to first start by defining the roles of both the primary borrower and the co-borrower. 

What Is a Primary Borrower? 

A primary borrower is the main individual who applied for the mortgage loan and whose credit score is used for the application. If you decide to jointly apply for a loan, the primary borrower will often be the individual with the highest credit score as this will come with financial advantages. This includes lower interest rates, more loan options, and more favorable loan terms.

What Is a Co-Borrower? 

A co-borrower, sometimes referred to as a co-applicant or joint applicant, is someone who joins the primary borrower on the loan and shares equal responsibility for repaying the loan. This could be on a student loan, auto loan, and, in this scenario, a home loan. Additionally, their name will appear on mortgage loan documents and their income is utilized to qualify for the loan. While a co-borrower can be a friend or close relation, it is generally a family member or spouse.

Choosing to Add a Co-Borrower

Depending on the primary borrower’s financial situation, they might be interested in adding a co-borrower to the loan. There are a variety of reasons someone might decide to apply for the loan with a co-applicant. Here’s some of the top reasons: 

• If the primary borrower has no credit or a low credit score
• If the primary borrower is looking to qualify for a larger loan amount
• If the primary borrower is looking to get a competitive interest rate
• If the primary borrower is looking for someone to share in responsibility of repaying the loan

It’s worth noting that mortgage lenders base loan rates off of the lowest median credit score between both applicants, which is why it’s best to have a co-borrower with a good credit score and low debt-to-income ratio (DTI). Working with a co-borrower brings additional income and assets to the table, which can prove helpful in a real estate transaction. 

If a primary borrower has a low credit score, adding a co-borrower might be the best option to secure a loan and enable the primary borrower to get better terms on their mortgage payments. 

How to Add a Co-Borrower

There are plenty of reasons that someone might opt to add a co-borrower onto their loan and share in the responsibility of repaying for a home. Here’s a closer look into how you can add a co-borrower to the loan and the rights of the co-borrower.

Adding a Co-Borrower on a Loan

You can add a co-borrower during the loan application process. When filling out a mortgage application, you’ll be asked whether you’d like to add a co-borrower to the loan. By checking yes, you will then fill out required information about the co-applicant. This includes putting down the co-borrower’s employment, income, and education level.

If you’ve already submitted your loan application and would like to add a co-borrower, you need to withdraw your application and submit a new one. Keep in mind that each new application will require a soft credit check, where your credit report will be pulled. 

Rights of a Co-Borrower

Whether or not a co-borrower is an owner varies from situation to situation and boils down to what each party chooses to do. You can have a co-borrower who is not on the title and, as such, doesn’t have ownership of the house. In this situation, ownership of a house belongs to the primary borrower. Meanwhile, other parties will choose to put both names on the title and share equal ownership of the home. 

Common Questions Around Co-Borrowing

Now you know what a primary borrower and co-borrower are and how you can add a co-borrower to your loan. Here are some other questions you might have during the homebuying process.

Is a Co-Borrower vs. Co-Signer the Same? 

While co-borrowers and co-signers share similar roles, they are not quite the same. A co-signer refers to a person, whether it be a friend or close family member, who makes the commitment to pay back the loan if the primary borrower defaults or has missed payments. However, they are only responsible for loan payments if the primary borrower fails to do so.

A co-borrower, on the other hand, has more responsibility because their name is on the loan and they are expected to make regular payments. Unlike a co-borrower, a co-signer has no legal rights to the property or assets. Looking at your personal finances can help you determine if a co-borrower vs. co-signer is right for you.

Does the Co-Borrower Have to Be a Relative or Spouse?

No, the co-borrower and primary borrower do not have to be related or married. A co-borrower can be anyone — like a friend, romantic partner, or sibling.

Regardless of their relation to the primary borrower, the co-borrower will either be identified as an occupying co-borrower or a non-occupying co-borrower. If a co-borrower does not live in the home that the loan is for, they are considered a non-occupant co-borrower.

Can You Add a Co-Borrower to an Existing Mortgage? 

You can only add a co-borrower to an existing one if you choose to refinance the mortgage. Refinancing your home gives you the option to add or remove co-borrowers from the mortgage loan and title. 

Refinancing the mortgage can change the payoff date, monthly payment, or interest rate. By adding a co-borrower, you might be able to get a lower interest rate or improve your loan terms, although this will vary from situation to situation.  

At Aalto, We Put Buyers and Sellers First

Depending on your unique financial situation, adding a co-borrower might be a good option for you on your journey to becoming a homeowner. At Aalto, we directly connect buyers and sellers through our self-service platform so you won’t need to pay the extra fee to hire a traditional real estate agent.

By choosing to buy with us, you’ll have access to hundreds of listings that you won’t find elsewhere. Our team of professionals will manage contracts, disclosures, and paperwork when you purchase a home. Plus, buyers can even look forward to receiving up to 1.5% cash back when you buy a home on Aalto. Sign up on Aalto today and start the process of finding your dream home.