There is a lot of jargon that comes with purchasing a home. Even though this could be confusing, purchasing a home is also a significant decision. Therefore, it is critical for everyone to understand exactly what they are signing before they scribbled their name on the dotted line. In some cases, a co-borrower or a co-signer (also called a non-occupying co-borrower) could be needed to strengthen the application. What is the difference between these two terms? 

What Is A Co-Borrower?

First, a co-borrower is simply a co-owner. Both names are on the title of the home. The co-borrower also shares the responsibility of the debt. This arrangement is usually used when two people are purchasing a home together. Usually, the primary borrower is going to be the person with the higher credit score. At the same time, the credit scores of both owners will be taken into consideration. 

What Is A Co-Signer?

Also called a nonoccupying co-borrower, a cosigner is similar to a guarantor. Legally, a cosigner will not have any claim on the home. They will not take possession of the home and their name will not go on the title. On the other hand, they are still financially responsible for paying back the loan. In the event the primary borrower is unable to meet the monthly mortgage payments, the financial responsibility will fall on the cosigner. 

Choose The Right Co-Borrower Or Co-Signer

It is critical for everyone to make sure they choose the right cosigner if they need one. Ideally, a primary borrower will be able to file a successful home application on his or her own. On the other hand, if the bank or credit union says that a cosigner or co-borrower is needed, it is critical to find someone who is reliable and trustworthy. Remember that they are going to be responsible for paying back a loan in the event the primary borrower cannot make the monthly mortgage payments.

Remember that a co-borrower is going to be listed as another owner of the home. In contrast, a cosigner is financially responsible but does not have any legal claim to the home. Understand the difference before signing a mortgage application. 

There are numerous steps involved in the process of buying a new home. It is important to go through the mortgage qualifying process before looking at dream houses. This gives people an idea of how big a house they can afford. Sometimes, individuals looking for a house might not get a loan that is big enough to cover their dream house. There are ways to qualify for a larger loan; however, one of the fastest methods is to use a co-signer.

What Is A Co-Signer?

A co-signer is someone who signs onto a potential home loan with the homebuyer. Essentially, the co-signer is saying that he or she is willing to be on the hook for the loan in the event that the primary homeowner is unable to make his or her mortgage payments.

This is a big commitment from the co-signer because he or she is exposing himself or herself on behalf of the primary borrower. On the other hand, the co-signer is also providing a vote of confidence on behalf of the primary borrower. Parents often act as co-signers for their children when they purchase their first home.

Vetting The Co-Signer

When someone is going through the home loan process, they are asked to produce tax returns, proof of income, credit reports, bank statements, and more. The co-signer is going to go through the same process. The bank wants to make sure the co-signer is actually adding something of value to the buying process.

The income and debt of the co-signer will be added to the primary borrower. Then, the two will be combined to be approved for a larger home loan. This can help someone purchase the home of his or her dreams.

An Important Note On The Co-Signer

If the co-signer goes to apply for a home loan or car loan in the future, the loan for which they co-signed will show up. This could limit the ability of the co-signer to qualify for a loan down the road. Even though having a co-signer can increase the size of the loan for the primary borrower, this is not without risk to the co-signer. Consider this carefully!