Co-borrower, Co-signer & Buying Before Marriage

Published on December 28, 2016

– 6 min read

Here’s the deal on co-borrowers, co-signers, and buying before marriage.

In some cases, you won’t be buying a home alone. You may have a spouse, significant other, or partner who will also be involved. Maybe you have a parent or family friend who is willing to co-borrower or co-sign the loan to help you qualify or to get a better interest rate. It is also becoming more common to buy with a significant other before marriage.

Co-borrower vs. Co-signer

There are two different types of “partnerships” when it comes to home loans: co-borrowers and co-signers.

  • Co-borrowers – Have their name on the title of the house. Their name is on the loan, and they’re obligated to repay the debt.
  • Co-signers – Do not hold ownership in the property, but they are liable for the repayment of the home loan.

In both cases, co-borrowers and co-signers are responsible for signing all documents. Their income, assets, liabilities, and credit score can be used in qualifying for the loan. The presence of a co-borrower or co-signer can also affect pricing, so if your credit score is low, having a co-signer with a significantly higher score is a great way to get a better interest rate.

Buying Before Marriage

First-time home buyers are increasingly likely to purchase a home before marriage. There are a number of factors that contribute to this, both social and financial, and it carries some key implications with respect to home buying.

    Nearly 1 in 4 married couples ages 18-34 bought a home prior to marriage, significantly higher than married couples age 45 or over

There are a few things to consider before buying with your girlfriend or boyfriend:

  • Personal Finances – Most people don’t ask to see a credit report on the first date. Buying a house takes your partnership past the level of romance and into the world of finance. Buying a home with someone is a business transaction. Before you start house hunting, you should compare things like credit scores, income, and how much cash each person is willing to commit to buying the home.
  • Managing Costs – Home buying comes with expenses, both expected and unexpected. It is crucial to set clear expectations on who is responsible for these costs, or how you will split them up.
  • Holding Title – Will you be 50/50 partners? 70/30? Will one partner hold title alone? Your ownership should be clearly defined, and will effect whose name goes on the title and what their responsibilities are. For info on joint tenancy, tenancy in common, and sole ownership, you can go here.
  • Exit Strategy – Nobody likes talking about breaking up, but having a clear exit strategy in case of breakup is important. When you own a house together, splitting up with your boyfriend or girlfriend feels more like a divorce. No matter what you decide regarding shared expenses and title, make sure you and your partner agree in writing. It may be helpful to consult a real estate or estate planning attorney to understand your options and get a contract together.

Co-Borrower Benefits

Having another person on the loan can carry a lot of benefits. If you have saved a large amount of cash but you have a moderate credit score and are self-employed, qualifying may be tricky. Having a co-borrower with a high credit score and consistent income can have a significant impact and could be a natural complement. Suddenly your interest rate is better, your affordability amount raises, and qualifying becomes much easier. However, it may work against you too. Say in the case of a co-borrower with very low credit. Or it may not be something that’s in the best interest of your personal relationship.

If you’re not sure whether to add a co-borrower or not, chat with a licensed Loan Specialists. If you’re ready to see what rates you may be able to qualify for, you can do so completely online in about 3 minutes.

Steven Fung
Steven Fung is a licensed Loan Specialist at Clara with over 17 years of experience. When he doesn’t have his mortgage hat on, he enjoys repairing old cars and working on home improvement projects.
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