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

A co-signed mortgage is often used 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 all parties need to take professional advice before proceeding.

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

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

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

In many cases, they must put up equity or savings as security.

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

Who can co-sign a mortgage?

While parents are usually co-signatories, this is not the only available route, and there are lenders who will accept friends. However, some insist that the co-signer be 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 with the primary borrower, the co-signer usually needs to be financially sound and have a good credit rating. Essentially, the co-signer ‘props up’ the primary borrower’s borrowing power to reduce the lender’s risk and secure a mortgage.

Co-signers will need to:

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

A co-signer with bad credit, a high debt-to-income ratio, or a low/fluctuating income could be detrimental to your application.

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

How a broker can help get you the best deal

There are plenty of lenders prepared to offer co-signed mortgages. Still, typically, people looking for one do so because they cannot get a mortgage approved on their own.

A broker who knows the co-signer mortgage market is best placed to find the right deal according to your 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 borrowing power.

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

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.

Regulations bind mortgage providers and must lend responsibly. Each lender has their 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 can go it alone. In this case, a joint borrower sole proprietor mortgage might be better as you usually have a greater choice of lenders.
• Lowering your loan to value 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 bad credit history and want to ‘borrow’ their good credit rating to get a mortgage or secure a better rate. This is a perfectly plausible strategy, but it is 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 make the application process more difficult, as each credit check will leave a mark on your credit file.

Get matched with 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. However, given the right circumstances, it can be the best route into home ownership. 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 your best option.

To speak to an advisor specialising in this niche, call 0330 818 7026 today or enquire online to arrange a free, no-obligation chat.