An FHA loan, or federal housing administration loan, is a mortgage loan backed by the U.S. government. Although FHA loans are generally easier to qualify for than other types of loans, first time buyers may still need a co-borrower or co-signer to qualify. These two terms are often used interchangeably, but they actually mean slightly different things from a lending and ownership perspective. It is important for buyers to understand the differences between co-signers versus co-borrowers on FHA loans. The information below may help.
Co-Borrowers are essentially co-owners of a property. They are listed on the title of the property, are equally responsible for repayment of the loan, are included in all loan documentation, and are subject to the same qualifying factors. Co-borrowers are typically spouses, but can be friends or family members as well. Consider borrowers and co-borrowers as two individuals purchasing a home together.
A co-signer is someone who is willing to “guarantee” a loan but isn’t necessarily sharing in ownership. The use of co-signers is common in cases where a buyer’s credit score or income is not sufficient to qualify for a loan. For example, a parent may co-sign a loan for a child purchasing their first home. While they are not listed on the title and have minimal rights to the property if the owner is still repaying their loan, co-signers are still financially liable for loan repayment. If the borrower fails to repay a loan, lenders will pursue both the borrower and co-signer.
Deciding Between Co-signers Versus Co-Borrowers on FHA Loans
Selecting between co-signers and co-borrowers on FHA loans comes down to ownership. If you will be owning a home with someone else, you will want them as a co-borrower. If you merely need someone else’s name and income to qualify for a mortgage, then you are looking for a co-signer. Selecting the right category is important for your ownership rights and can also impact your estate should you become deceased. For more information and guidance on this and other real estate ownership topics, contact our team at Martino Law Group.