Real Estate

What Is Co-borrower and How to Add It to Your Mortgage

What Is Co-borrower and How to Add It to Your Mortgage

A co-borrower is a person who applies for a loan or line of credit with another borrower. The funds associated with the loan are equally accessible to the co-borrower and the payments must be made by both the co-borrower and the primary borrower.

A mortgage lender will accept many names on a loan, and if the other person agrees to share the mortgage burden with you, applying with a co-borrower lets you qualify for a bigger amount. This means that if the mortgage is not paid, it will have an impact on both credit ratings. You can add a co-borrower when applying for the initial loan, but there are special rules for adding a co-borrower once you’ve obtained a mortgage loan.

The benefits of having a co-borrower

If you wish to give your spouse, parent, or kids a legal stake in your home, adding them as a co-borrower is not the way to go. Instead, contact your title firm and pay the requisite cost to add the person to your mortgage deed, however, some circumstances may necessitate adding a co-borrower to your mortgage loan.

If you marry or add someone to your deed, they might agree to pay all or part of your mortgage, but note that this is a verbal agreement between you and the other individual, but he isn’t bound to keep the agreement if his name isn’t on the mortgage loan. By adding this person’s name to the mortgage, he becomes liable for the loan, making him more likely to stick to the payment schedule.

Adding a co-borrower necessitates refinancing

Adding a co-borrower to a mortgage that it’s already running its due course certainly takes more than phone calls placed across to your mortgage provider. To adjust the terms and conditions of your house loan, you have to refinance it and this can be applied to changes like the interest rate, pay-off date, monthly payment, as well as add or remove names on the mortgage.

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Requirements for refinancing

Fill up and submit a new mortgage loan application to refinance your loan and add a co-borrower and you can apply with your existing lender or start over with a different lender, but a mortgage approval isn’t assured.

When you refinance, the lender reassesses your situation and, if you’re adding a co-borrower, examines his or her situation as well, such as employment status, credit ratings, and current debt balances. In most cases, a conventional refinance requires at least 20% equity, while an FHA refinance requires only 5% equity.

Furthermore, you should consider the financial implications of taking out a new loan before refinancing your home to add a co-borrower, this is true in that, a property assessment and closing charges are two expenditures you will have to deal with when you refinance.

Another fee to contend with is the closure charges which range from 3% to 5% of the loan balance and must be paid on the day of the closing. Although some lenders may allow you to roll this cost into your loan balance, this will increase your mortgage balance and monthly payment in the long run.

The Author

Ajisebutu Doyinsola

Doyinsola Ajisebutu is a journalist and prolific writer who takes a special interest in Finance, Insurance, and the Tech world.