Mortgage Co-Borrower vs Cosigner: What's the Difference?

The PropertyClub Team
Aug 1st 2020
There are numerous differences between a co-borrower and a cosigner on a mortgage, and knowing them can help ensure your loan gets approved. This article will help you understand the difference, which will hopefully help you figure out which you need. 

Co-borrower vs Cosigner

When you’re borrowing money for a mortgage loan, you will get asked if there are any co-borrowers when you first fill out the paperwork. Or, you might need to use a co-signer to get approved. This is a common experience that most first-time lenders have, and if you’re not used to the lingo, it can be confusing. Generally speaking, a co-borrower will be treated as a joint applicant and have similar responsibilities to the primary borrower, while a co-signer is there to guarantee the loan in the event the primary borrower is unable to make payments. 

At times, people use these two terms interchangeably. Though that’s a common way of using them, it’s not correct. Co-borrowers are not the same as co-signers, and mortgage companies won’t treat the two similarly at all. 

What Is A Co-Borrower?

Not all mortgages are going to be a single person’s endeavor. A co-borrower is someone who is applying for a mortgage alongside you. This means that they will go through all the same paperwork, get vetted by the lenders, and deal with making payments from the get-go. Here’s the scoop:

  • They pay with you from day one. Co-borrowers are expected to pay their fair share alongside you regardless if you are paying the mortgage. This is their role as a fellow borrower.
  • They get vetted by the same standards. Lenders will judge groups of co-borrowers as a whole. So, they’ll take the total income of all borrowers, the total debts, as well as everyone’s credit scores before they make a decision. 
  • You will have to figure out ownership on your own. You may be required to get a legal document drafting up homeownership rights to make this happen. Consult a lawyer before you do it.
  • More people tend to be open to being a co-borrower. Most people are more open to co-borrowing, simply because they get something out of it. It’s also a more unique request, which makes them more open to it.

What Is A Mortgage Cosigner?

A co-signer is very different from a co-borrower, primarily because co-signers act as a “backup person” if you cannot pay a loan. Here are the details that you need to be aware of:

  • Cosigners only pay a mortgage if you can’t pay it. If a borrower defaults on a loan, the bank will then turn to the co-signer to have them pay it. This is the crux of what a co-signing agreement does. 
  • Your co-signer’s financial history will also be used to determine if you can qualify. Though they probably won’t pay for the house, lenders will still run a thorough check on a co-signer’s financial fitness before they can approve you for a loan. Co-signers can get rejected, too!
  • A co-signer can have serious credit score penalties for signees that can’t pay. If the co-signer can’t pay, they will be subject to a serious credit score hit. This can lead them to be disqualified for a loan later on in life. 
  • Co-signers do not retain any rights to the house. A co-signer cannot be given rights to the house, even if the original borrower bails on their responsibility. This is why most people see co-signing as “all risk, no reward.”
  • Most people will reject being a co-signer on principle alone. If you ask someone to be a co-signer on a loan, chances are they will balk at the idea. No one wants to be on the hook for something they won’t get anything out of, and in many cases, it’s taken as a sign that you want to scam them.

Do I Need A Co-Borrower Or A Co-Signer?

In most cases, there will never be a need for a co-borrower unless you want to include someone on the title of the house. Co-borrowers usually take the form of fellow house investors or spouses. Anyone else tends to be a lousy candidate, simply because they may not have any way to exercise their ownership aside from living in the house.

A co-signer is a little bit different. If they accept doing it, their role is to assume the debt if the original borrower can’t pay. This is a role that is only deemed needed if lenders have serious doubt that you can pay your mortgage on time. A co-signer may be necessary in certain situations, but it’s not mandatory for all borrowers. 

Can You Use A Co-Borrower As A Co-Signer?

Let’s say that you want to get a house, but no one will co-sign on your loan, and you need a co-signer. This may put you in a bad bind, since your ability to borrow money for a mortgage loan hinges on finding a co-signer. So, what can you do?

Potentially, you could use a co-borrower as a co-signer. However, you will have to allow them to be partial owners of your house. This can be difficult, so you need to check with your lender to see if this is doable. 

Can Anyone Become A Co-Borrower Or Co-Signer?

Not quite. Both co-borrowers and co-signers have regulations that restrict who can work with them. Co-borrowers will need to have sterling financial records, just like co-signers do. When it comes to co-signing, things get even dicier. They are not allowed to have a vested financial interest in the property at all unless they’re related to the person they’re co-signing for.

Conclusion

If you are looking to get a little help in getting a mortgage, you’re not alone. You have options, and those include co-signing and co-borrowing. If you know the difference, you can figure out which you need and how you can approach the right people for some help.

That being said, it’s important to remember that adding anyone into the mechanics of a loan is a major process—not to mention one that should not be taken lightly. Knowing this, you should only ask people that know you and trust you to get involved with your loan. Otherwise, it may not work out the way you want it to.