Buying a house is one of the biggest investments you’ll ever make. In fact, it’s likely the biggest investment you’ll ever make in your lifetime. That being said, many prospective homebuyers find themselves unable to get approved for a mortgage. 


If you don’t qualify for a home the first time around, a few things might be to blame. First, you might have a low credit score or a limited credit history. Another factor could be your employment history. For example, if you don’t have any consistent source of long-term employment, this is a red flag to lenders. Finally, you might not be approved if you have a high debt-to-income ratio.


All of these factors combine in many cases to prevent people from qualifying for a home. However, this doesn’t have to mean your dreams of owning a home are ending. Including a co-borrower in your mortgage could affect whether or not you qualify for a home. 



What is a Co-Borrower?

First, let’s define what a co-borrower is before we talk about when it’s best to use one. When someone helps you qualify for a mortgage by including themselves on the application, they’re a co-borrower. This is usually a family member such as a parent or spouse.


There are two types of co-borrowers: occupying and non-occupying. An occupying co-borrower plans to reside with you in the home while non-occupying are simply putting themselves on the line as a source of credit. In most cases, a co-borrower will help you qualify for a mortgage. 


Many people confuse co-borrowers with co-signers. There’s actually a big difference. While a co-signer is also listed on the mortgage, they don’t have to be listed on the title for the house. A co-signer is also not liable if you’re unable to repay your mortgage. Co-borrowers, on the other hand, sign all loan and legal documents and have an ownership interest in the property. As such, they are responsible for monthly payments. 



Why Use a Co-Borrower?

As you can see, co-borrowers take a risk when they join your mortgage. Since they’ll have ownership of the house, they’ll also be responsible if any problems arise with payments. While you can be co-borrowers with someone who isn’t related to you, it’s smart to make sure this is someone you trust taking on a big commitment with. 


If you’re unable to qualify for a mortgage on your own, adding a co-borrower can help. When they add themselves to your application, their credit, debt-to-income ratio, and employment history are included in the overall application. This means that together you’ll be able to afford higher monthly mortgage payments. 


Since the debt-to-income ratio is often one of the most important factors when mortgage lenders consider whether or not you can afford payments, a co-borrower can reduce the burden. They’ll also be of assistance if you have a limited credit history. 


However, it’s important to note that lenders will always look at the lowest of two credit scores when considering an application. This means your lower score between all co-borrowers will be the primary credit score on the application. If this score is below the lender’s qualifications, this could be a reason to reject the application despite the addition of a co-borrower. 


As you can see, buying a house is no easy process. That being said, adding a co-borrower makes affording a home possible for many people who wouldn’t qualify on their own. If you’re considering a co-borrower, make sure you review the advantages and risks before you go ahead with a new application.