How Does Co-Signing a Mortgage Work?

A co-signed mortgage is often used to help first-time buyers get onto the property ladder. If you’re struggling to get a mortgage as an individual or couple, it can be a route worth considering.

It’s not as straightforward as taking out a mortgage in your own name but, given the right circumstances, can be the difference between approval and rejection. By following this guide, you’ll have a better understanding of how to go about this and where to look for assistance.

What is a co-signed mortgage?

A co-signed mortgage is a home loan with a guarantor or co-signer. The co-signer takes legal responsibility for repayments if the primary borrower stops paying, but doesn’t own any part of the property. Co-signing shouldn’t be confused with co-borrowing which is where all applicants are responsible for the debt and own the property together.

If you think a co-signed mortgage might be your best chance of buying a property, speak to a mortgage broker who can help you work out whether it’s the right thing for you and find the best lender if you decide it’s the way to go.

Who can co-sign?

Different lenders have different criteria when it comes to co-signers. Some will insist on having a close family member while others are a bit more flexible. Of course, co-signers will need to have a good credit score and show they have the means to pay the loan if required.

Most co-signers are parents with a low Debt to Income (DTI) ratio (i.e., they have minimal debt and steady income) or who agree to offer their own property or savings as security against the mortgage. In some cases, the lender will lock a portion of the co-signers savings in an account or take ownership of part of their property for the life of the co-signed mortgage, or until the borrower has generated a certain amount of equity.

It’s best to seek professional advice on the specific risks of any particular co-signed loan product before going ahead, to ensure there are no nasty surprises down the line.

Why choose a co-signed mortgage?

Co-signing is a way of helping someone (usually a family member) get onto the housing ladder when they don’t meet the eligibility criteria on their own or can’t prove affordability. It’s used to strengthen a mortgage application or ‘get it over the line’.

The major beneficiary of a co-signed mortgage is the primary borrower. They get to buy their first home, which they wouldn’t otherwise have been able to. The co-signer has the satisfaction of knowing they have helped a family member get a start in life.

Co-signed mortgagors can often get better interest rates than they could hope to be offered if applying on their own. In some cases they can buy with a reduced deposit, or even borrow 100% of the value of their new home in certain circumstances.

A co-signed mortgage may be your best bet if you are:

Some lenders will predict the primary borrower’s future ability to pay when assessing whether to agree to a co-signed mortgage. This type of loan is not intended to be permanent and most brokers will discuss possible exit strategies with the co-signer as part of the application process.

How to prepare your application

If you’re interested in this type of mortgage, there’s a few simple steps you should take right from the outset to make the process much more straightforward.

Eligibility requirements

To qualify for a co-signed mortgage, you will need to meet the lender’s eligibility criteria and deposit requirements, which are as follows…

What can impact your application?

When someone co-signs your mortgage, they ‘loan’ you’ their good credit rating and secure financial position. But that doesn’t mean you will automatically be accepted for a mortgage just because you have a co-signer.

A poor credit rating can adversely affect your application even if the co-signer has an impeccable financial record. Or the co-signer may have a significant amount of debt that discourages the lender from approving the loan despite a perfect payment record.

Lenders will expect to see evidence that the primary borrower(s) can afford the repayments from their own income. Although some may only expect the primary borrower(s) to have capacity to afford 70% of the repayments. If this is the case, serious consideration must be given to how the loan will be repaid.

Others place a limit on the age of the co-signer at the time of signing the agreement and its intended closing date. There might also be a cap on the loan to value ratio.

Deposit requirements

Deposit requirements vary hugely. As always, the bigger your deposit, the more likely you are to be accepted for a mortgage, and the better rate you will be eligible for. As a general rule, anywhere between 10%-15% is a good starting point.

If you haven’t been able to save this amount – don’t panic! This is all about getting started and having a co-signer alongside you will help overcome a low deposit scenario, as long as you know where to find the right lenders who can cater for them.

What types of mortgages can be co-signed?

A wide variety of mortgages are available for co-signature but this option is most often used for first-time buyers. Help to Buy mortgages are eligible if you can find a willing lender.

While many high street lenders are quite rigid in terms of eligibility and lending criteria, there are plenty of more flexible options out there if you know where to look. With a broker on your side, you can approach those lenders most likely to approve your application.

Going it alone can be a bit of a stab in the dark and you run the risk of multiple rejections which can have a negative impact on your credit file.

Finding the right broker for a co-signed mortgage

Due to the complex nature of co-signed mortgages and the broad range of eligibility criteria, a broker is your best bet in finding the right one for you. They’ll find you the best deals and guide you through the paperwork no matter how complex it is.

We work with mortgage brokers who specialise in finding the best deals for co-signed mortgages from lenders up and down the country. Our broker-matching service will put you in touch with someone who has a proven track record of helping people in your situation.

Give us a call on 0808 189 0463 or make an enquiry and we will arrange for an expert to speak to you straight away for a free, no obligation, chat.