10 Tips on Buying a House Without a Mortgage Cosigner

Aug 12, 2022 | Mortgage Guides

In today’s housing market, everybody’s trying to get in on the act, including every family member, friend, or acquaintance you can name! For a good reason, too, becoming a homeowner is worth celebrating. 

‍In this guide, we’ll walk you through various ways to secure your homeownership, increasing your odds even without the safety net of a cosigner. We’ll also provide all the necessary information for you to understand this critical relationship. For example, we’ll detail the role of the cosigner, the number of cases where this type of assistance is needed, and what their debt-to-income ratio (DTI) means for your application. But first, a quick refresher.

What Is a Mortgage Cosigner?

Owning a house is expensive, and sometimes we need a little help. That’s where a mortgage cosigner comes into the picture. A cosigner is someone, often a family member or close friend, with proven financial resources willing to secure the home loan even if it could cost them.

‍Bringing on a mortgage cosigner is a serious decision involving an investment. The cosigners are under even more pressure because they provide financial support with no benefits. While cosigners sign the paperwork and can be held responsible, they do not live in that home‍.

Mortgage Cosigner vs. Co-Borrower

Often confused, the differences between a mortgage cosigner and a mortgage co-borrower are decisive. To illustrate with an example, while a cosigner takes on financial responsibility when the primary borrower defaults on the loan, a co-borrower will usually live in the home and share equal responsibility.

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How Buying A House Without A Cosigner Works

When it comes time to bring on a cosigner, they’ll go through an identical process to what you went through, including providing their name and other details so they meet all qualifications. That includes a credit check, employment and income verification, and the usual vetting to prove their support. Then, they sign the dotted line with you.

Who Can Be a Cosigner?

While there are no limits on who can be a mortgage cosigner as long as they meet the financial qualifications, it’s best to narrow it down. Often, mortgage cosigners are family members of the primary borrower. Cosigning is an agreement where the trust is mutual; more often than not, you can find that with a family member you’ve built a strong relationship with.

When Is the Need for a Cosigner?

Cosigners are needed when borrowers fail to meet one or more of the requirements to be approved for the loan. What’s holding them back? According to lenders, it is a bad credit score, a lack of employment and income, or too much debt, which is represented by a high DTI.

When lenders find you too risky to make mortgage payments on time, they’ll encourage you to get a cosigner. Not everybody has someone who can be a cosigner, though, and in some cases, options might seem limited.

Tips On Getting a Mortgage Loan Without a Cosigner

Following are ten tips we’ve put together to help you land that dream home without needing a cosigner. While you may not be eligible or suitable for all, every tip brings you closer to your goal.

1. Increase Your Credit Score

What better place to start than by improving your credit score? Your score is the most significant number that mortgage lenders examine when deciding whether to approve you for a loan. Hence, obtain a free copy of your credit report and ensure everything with your name on it is correct.

‍The next step is analyzing the report to determine what brings down your score. Typical culprits are late or missed payments, a lopsided debt-to-income ratio, or a lack of credit history. Once you’ve pinpointed the problem, work toward fixing it.

2. First-Time Home Buyer Assistance Programs

If you are a first-time homebuyer, you could qualify for assistance, depending on your location. These programs make purchasing your first home that much easier, especially when a loved one or a close friend can’t be a co-signer.

‍These programs are provided by local charitable sponsors, your state government, or sometimes even through a federal program. To learn more, visit the Department of Housing and Urban Development. ‍

3. Buy A Less-Expensive Property

When buying a house, it’s important to shop within your means. Everyone wants the best possible home, but chasing that dream is often expensive. If you have difficulty qualifying for a loan due to a high DTI, for example, and can’t afford to wait, consider opting for a smaller home. A house with less square footage or just one less room can make a difference. It’s worth noting that condos and townhomes can also be less expensive. 

4. Request An Exception

Another option often overlooked is requesting an exception on your rejected loan to receive a second opinion. The chances for this tend to be slim unless a specific event causes an unexpected struggle. 

If you find yourself in an exceptional circumstance where your application for a loan has been denied, you are responsible for writing to the lender explaining and defending your personal situation. This could include factors like income stability, ability to meet monthly obligations, and financial management.

5. Use Different Mortgage Lenders

If you’re still running into roadblocks trying to become a homeowner, it might be time to engage a new mortgage lender. Banks and mortgage companies operate at varying rates and have different terms in their contracts, which are not the same. Your local banks and community mortgage companies, who specialize in home loans more than larger banks, are excellent options. 

‍So, pose as many questions as possible about the potential lender’s requirements to understand their expectations and prepare. However, if multiple entities deny you, it could be an indicator that the issue lies beyond the lenders, perhaps in your financial management or guarantor’s credibility.

6. If Eligible, Use an FHA Loan

A bad credit score can often be a stumbling block to securing a loan, with most conventional loans requiring a credit score of at least 620. However, not all hope is lost for those grappling with a less favorable score, tight finances, and not much time. There are other alternatives available that offer more lenient terms.

‍One such option is the FHA Loan Program. Approved local banks offer this program to low-to-moderate-income buyers. Here, the Federal Housing Administration acts as the guarantor and issues the mortgages, enabling individuals with low credit scores to still become homeowners. This government-backed loan uses money as an asset without requiring collateral, making it easier to secure.

7. Or Other Government-Backed Loans

Government assistance for homebuyers is not confined to FHA loans. Several other loans are available to help families who cannot meet the standard loan requirements. Thanks to the federal government’s backing, these mortgage loans are less risky for lenders, making it easier for potential homeowners to qualify.

‍Government loan options include VA loans sponsored by the Department of Veteran Affairs and USDA loans backed by the Department of Agriculture. Before agreeing to any contract, make sure to explore all available options.

8. Consider a Multi-Family Home

Several loan programs also permit the purchase of multi-family homes. According to specified guidelines, you can buy a two to four-unit home and rent the unused units to meet the qualification requirements. FHA and USDA loans provide this benefit with a pleasantly low down payment rate of 3.5%.

9. Refinance the Original Loan

This next tip is for any person who already holds a mortgage loan with a cosigner but now wishes to remove them. While your income or credit score may not qualify for a conventional mortgage loan now, the term might see suitable changes. Once you, the primary borrower, can demonstrate your eligibility for the loan, you can refinance to take the cosigner off the loan.

10. Wait Out the Storm

Sometimes, it’s best to exercise patience regarding obtaining a loan. This is particularly true if the economy and housing market conditions are volatile or if banks and lenders are wary of approving loans. It’s also a prudent choice if your credit score and debt-to-income ratio could use some improvement. If time is on your side, use it to your advantage and return with a higher credit score and income that lenders cannot refuse.

The Pros & Cons Of A Mortgage Cosigner

Before stepping foot on the property ladder, weigh the pros and cons of every option. Among the many considerations when contemplating the above is whether you need a cosigner, which has its own advantages and disadvantages.

Ask yourself if having a cosigner simplifies the process of buying a home for you. Or perhaps a cosigner ensures better qualifying prospects for a home loan, allowing you to enjoy the benefits of being a homeowner? Maybe the convincing factor is that your interest rates will be lower, thanks to the cosigner’s financial standing.

The Upside Of Having A Cosigner

It makes for a simpler and stress-free (for you) process of buying a home. 

  • You better qualify for a home loan to enjoy the many benefits of homeownership.
  • Your interest rates will be lower, thanks to the cosigner’s financial standing.
  • You can refinance the cosigner off your loan when you’ve improved your financial standing.

The Downside Of Having A Cosigner

Even though a cosigner might make it easier to secure a mortgage loan, it may still leave you feeling like less of a homeowner. Most of the risks fall on the cosigner, as they bear the responsibility of making monthly payments should the primary borrower default.

Potential risks to keep in mind include:

  • The cosigner’s credit score could be impacted if you fail to make on-time payments or default.
  • The cosigner’s debt-to-income ratio will increase, thereby reducing the amount of credit they qualify for.
  • Potential issues could arise between you and the cosigner if late payments occur or if you default on the loan.

Bottom Line

If you’ve been denied and have no one to turn to for cosigning a mortgage loan, it’s essential to work closely with the lender to explore other options. It’s not the end of the road but the start of a new journey as a future homeowner. So, don’t lose heart, keep your finances in order, and continue working towards your dream home.

Wesley Mortgage, the official mortgage provider of the Tennessee Titans, can help make your home ownership dreams come true. Contact a loan officer today at the link below or this number: (888) 407-2102

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