Tag Archive for: mortgage lender

What You Need to Know About Cosigning for a Mortgage

August 17, 2023
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Sometimes, we get by with a little help from our friends…or family. 

There are many reasons someone may need help to qualify for a mortgage. They may just be starting out and haven’t established a good credit history yet. Or perhaps they’re just getting out of a tough financial situation that they’re turning around. 

When it comes to cosigning for a mortgage, the cosigner is essentially boosting the financial profile of the mortgage application, while signing up to share responsibility for the loan should the primary borrower stop making their monthly mortgage payments. 

Questions About Cosigning

Cosigning can be an amazing thing to do for someone, especially your children or other loved ones, but it comes with a lot of financial responsibility on your part. Before cosigning for a mortgage, you need to understand all the implications, risks, and potential consequences. 

Does cosigning for a mortgage affect my credit?

Cosigning for a mortgage loan impacts your credit. The loan will show up on your credit report, meaning that it will impact your debt-to-income (DTI) ratio and overall credit utilization. Additionally, any missed or late payments by the primary borrower will impact everyone’s credit score—the primary borrower’s and the cosigner’s. 

Now for the good news: If the primary borrower consistently makes their monthly mortgage payments on time, it can improve everyone’s credit score. It’ll all come down to the primary borrower and their ability and willingness to pay on time.

With this in mind, it is always a good idea to maintain an open and honest line of communication with the primary borrower. This ensures that mortgage payments are made on time and creates good credit for everyone.

Does a mortgage count as debt? 

A home loan is a form of debt. Cosigning for a mortgage means you’re assuming responsibility for the debt alongside the primary borrower.

As mentioned, the mortgage debt will factor into your debt-to-income ratio, which lenders analyze to determine your ability to manage additional credit. It’s important to consider the impact of this debt when applying for other loans or credit lines in the future.

What are the risks of cosigning a loan? 

It’s a cold, hard reality that if the primary borrower fails to make timely monthly mortgage payments or defaults on the loan, the responsibility for this debt will fall on the cosigner. This could lead to financial strain, credit score damage, and even potential legal action as the lender attempts to collect the outstanding debt.

Remember, too, that since your debt-to-income ratio will be affected by cosigning for a mortgage, your ability to obtain credit in the future may be impacted. This is why you should think long and hard not just about whether you feel that the primary borrower can consistently pay their home loan, but also about any large purchases or credit lines you may need in the future. 

Reduced borrowing capacity could really hurt you if, say, you’re looking to finance a new car, help out a child with a student loan, refinance your own home, or invest in a second property. 

Can a cosigner be removed from a mortgage? 

The option to remove a cosigner from a mortgage loan depends on several factors. In some cases, mortgage lenders may consider removing a cosigner if the primary borrower has made consistent monthly mortgage payments.

It’s not as easy as just removing the cosigner’s name from the loan, however. The primary borrower typically has to refinance the home loan, putting it in their name alone. This means the primary borrower will have to take interest rates, credit score requirements, debt to income ratio, and their current financial circumstances into account. In essence, they would have to be sure they’ve cleared up the reason they needed a cosigner in the first place.

Trusted mortgage lenders can help you understand the specific requirements and conditions for removing a cosigner from a home loan.

What happens if a cosigner doesn’t pay?

We know what happens if the primary borrower doesn’t pay: The mortgage lender will come looking for the cosigner. But what happens if the cosigner also doesn’t pay? 

When a cosigner fails to make the mortgage payments, the lender will typically pursue both the primary borrower and the cosigner for payment. If neither party fulfills the financial obligation, they can both be subject to legal action and collection efforts.

What’s the difference between a co-borrower and a cosigner? 

A cosigner is someone who agrees to assume responsibility for the loan if the primary borrower cannot meet their obligations. On the other hand, a co-borrower (or co-applicant) is equally responsible for repaying the loan and shares ownership of the property.

While a cosigner’s name may appear on the loan documents, a co-borrower has equal rights and responsibilities, along with a stake in the house. 

What else do I need to know before cosigning?

You need to give cosigning for a mortgage loan a lot of thought. Assess the primary borrower’s financial stability, including their income, employment history, and credit history.

If you’re willing to consider cosigning a mortgage loan for them, you probably know the potential primary borrower pretty well. Use this relationship to your advantage as you think about how responsible they are in general. Do they always do what they say they’re going to do? Are they quick to shirk blame? Do they go out of their way to rectify problems, or do they avoid them like the plague? 

You want to be confident that your credit score, borrowing ability, and—most of all—good name will not be ruined by cosigning for a mortgage.

Next, ensure that you can comfortably handle the financial responsibility of the mortgage payment in case the primary borrower is unable to fulfill their obligations.

Finally, consult with a knowledgeable mortgage advisor like Preferred Rate to gain a comprehensive understanding of the specific loan terms, interest rates and any mortgage insurance requirements associated with the home loan. 

Pros and Cons of Cosigning for a Mortgage

You’ve now got a lot of information about what it takes to cosign for a mortgage. But let’s weigh out the benefits and risks so you can really hone in on whether this is the right move for you. 

Pros

  • Cosigning can help a loved one achieve their dream of homeownership.
  • It allows the primary borrower to qualify for a mortgage they might not otherwise have been eligible for.
  • On-time payments can, over time, help improve both the primary borrower’s and the cosigner’s credit scores and credit history.

Cons

  • Cosigning for a mortgage comes with financial risks, including knocks to your credit score and being held responsible for the other party’s missed payments or default.
  • It can limit your borrowing capacity, as the cosigned mortgage becomes part of your debt-to-income ratio.
  • The relationship between the cosigner and the primary borrower may become strained if payment issues arise.

Taking the First Steps

Cosigning for a mortgage is a big decision and a long-term commitment. So you have to weigh the risks and benefits carefully, considering both your financial situation and the primary borrower’s ability to fulfill their obligations. Sit down and have an honest conversation with the primary borrower. Make sure you lay the foundation for a healthy, open, and communicative relationship going forward.

Once you’re ready, bring a professional like a Preferred Rate mortgage advisor into your corner to make sure cosigning for a mortgage aligns with your financial goals and responsibilities.

If you’re at that point now and want to get started, give us a call today. We’re always here to help.

Is Buying a Home for a College Student a Good Investment?

August 4, 2023
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Tuition, books, transportation, room and board…the cost of college adds up fast. At first glance, then, it may seem crazy to consider buying a home for a college student, but is it? 

The truth is that there can be many benefits when you buy any property, and this scenario is really no different. In fact, when you consider the high cost of both on-campus and off-campus living in an expensive college town, buying a house that your student can use during their college years begins to make a lot of sense. 

The High Cost of College Room and Board

According to Credible, on-campus room and board runs about $12,680 or more annually for private four-year colleges and $11,140 or more for public, in-state colleges. Of course, these numbers can be much higher in certain areas, or at certain schools.

The cost of off-campus housing in college towns varies widely depending on a number of factors. These can include location, the type of rental it is, the number of bedrooms, the number of roommates, and the community amenities. However, since food, utilities, cable/internet, and transportation to and from campus are not included, SharedEasy estimates that these costs come to an average of about $27,180 for the nine-month academic year. 

Then, don’t forget, you will have to multiply those costs times four—or more—to account for your college student’s full academic career. During that time, the cost of room and board on campus, not to mention the rents off campus, are almost certain to increase annually.

What if you put those five figures of expense to work for you instead? With some planning, you could buy a property that could initially house your college student and then later function as an investment property after they’ve graduated. It’s definitely worth weighing the pros and cons of this room and board option.

Considerations in Buying a Home for a College Student

Let’s think through a few of the pros and cons to see if buying a home for a college student may be the right option for your family. 

Lowering room and board costs

One big pro is the potential financial benefit. Buying a home or condo can significantly lower the financial burden of off-campus housing or room and board, which can result in massive student loan debt with high interest rates. This is especially true if the property has room for multiple roommates, which would garner rental income for you. 

Providing your child with stability

Another advantage of buying a home for a college student is their stability and convenience. Owning your child’s home can eliminate their need to find a new place and move every year. It also cuts down on storage costs over the summer, as well as security deposits every fall.

Turning a profit through appreciation

Home appreciation can be a potential benefit, especially if you buy in a high-growth area. There is the possibility of making a nice profit if you sell when your college student graduates, or you could make this home an investment property and collect rental income.

Buying a house in a college town can be very strategic, as there will always be a need for housing as more students enter the school every year. Real estate agents can tell you more about renting to students, but it’s great to have a built-in renter base as long as the college or university is there!

Risks of home depreciation

Speaking of college students, depreciation is something to consider carefully. Tenants are always plentiful in college towns, but students aren’t necessarily the best renters when it comes to taking care of a property. Your property could lose value if your student renters don’t maintain it well, or if they do something illegal while living in the home. 

It’s important to have a conversation with your child about the responsibilities of being a good tenant—especially for their parents! You should have the same discussion with any of your child’s roommates. It’s also a good idea to involve the roommates’ parents. After all, many parents co-sign leases for their students. As a result, they should also be informed about what you expect, as well as any house rules. 

You might also consider paying to have the home’s basic maintenance and landscaping needs taken care of by a professional on a regularly scheduled basis. Your student likely won’t have time for maintenance and repairs, and this step can help your investment retain its value.

Tax write-offs

Now for some more good news: Buying a home typically comes with tax benefits. These could pertain to the interest on the monthly mortgage payment, mortgage insurance, and any repairs or updates you make to the home.

Tax write-offs can vary by state and can also depend on how you use the property. For example, there are different tax implications if you buy a property and allow your college student to stay in it rent free, vs. renting it out to other roommates. That’s why it’s always a good idea to check with your tax advisor before buying a home for a college student.

Your student’s independence

Owning the home means your student will always have their own private space and can personalize it any way they would like. They will also be able to choose their own roommates, do their own cooking, and control the noise level of their space. 

Retirement potential for yourself

It’s also never a bad idea to take your retirement strategy into consideration if you’re thinking of buying a home for a college student. Buying a property in a college town can be a great long-term plan. Consider that your child can live in it when they are in school, you can use it as an investment property and accrue rental income when they graduate, and then you can move into the property yourself when you’re ready to retire.  

Are You Ready to Buy a Property?

Now let’s look at all the costs associated with buying a house—whether you’re buying a home for a college student or not. There is the sticker price of the home, of course, but there is also the down payment, the closing costs, the monthly mortgage payment, the possible mortgage insurance (if you put less than 20% down), and the cost of any work that may need to be done to the home.

You also need to think about interest rates at the time you’re looking to buy. And you’ll definitely want to schedule a home inspection. The house may have served as student housing previously, and as mentioned, students aren’t always the most conscientious tenants! 

To help make the final decision, look at the bottom line costs. Consider these three possible scenarios for housing during your child’s college years:

  • Your college student lives on campus and pays for room and board, likely through student loans.
  • Your child rents a property off campus. Consider that they will have to set up accounts for all ongoing living expenses, get themselves to and from campus, and remember to pay each individual bill on time.
  • You buy a home for your college student and house them yourself for four or more years. After they graduate, you will have the option to sell the home or convert it into an investment property that earns ongoing rental income.

All in all, purchasing a home in a college town is something to consider—but it’s far from a no-brainer. It can, however, be a great way to skirt some of the college debt for you and your child; ensure that they’re housed in a safe, clean environment; and possibly earn you some money in the process. 

Are you ready to discuss this idea further? Preferred Rate is here to go over all your options and create a plan that’s right for you. Contact us today to speak with a Mortgage Advisor. 

How to Qualify for a Second Home Loan

July 25, 2023
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The American dream is not one size fits all. Some borrowers want to purchase a second home where their family can vacation for part of the year. Buying property as a second home could mean a cabin in the mountains, a beachside bungalow, or anything in between.

The vision is up to you. But what’s important is that you understand that buying a second home is completely attainable for many people. That’s right: Buying property as a second home can be within your reach, but it starts with understanding the second home mortgage requirements.

Second Home vs. Investment Property

Let’s clear one thing up before we discuss second home mortgage requirements. While an investment property may in fact be the “second home” you purchase—after your primary residence—that is viewed as a different product with a different purpose in the eyes of mortgage lenders.


A second home is an additional dwelling for you and your family. It can act as a personal vacation home, a place to stay when visiting family, or as your retirement home in a few years. While you may be able to rent out your second home on a short-term basis, the primary purpose of this property is for you and your family. With that in mind, you cannot rely on the rental income this home may generate when qualifying for a second home loan.

Down Payment

Most lenders require at least 10% down on a second home, though 20% down tends to be standard. Lenders need to see that you’re committed to buying a second home, as it’s easier to walk away from a home that isn’t your primary residence. A larger down payment may also help you avoid higher interest rates. 


As with a primary residence, you can obtain your down payment by tapping into savings, utilizing a monetary gift from a relative or domestic partner, or liquidating investments. You may even be able to use some of the equity in your primary residence when buying a second home by using a cash-out refinance or home equity loan. Your loan adviser can help you navigate this process.


You might be thinking, “But there are loan programs that don’t require any money down,” and you would be right. However, these are government-backed mortgages or down payment assistance, which cannot be used for second home purchases. Most second home loans are conventional loans, although FHA loans can be used as well.

Credit Score

Every lender is different, but credit standards tend to be a bit tighter when qualifying for a second home mortgage. That’s because a primary residence provides shelter, whereas a second home is a “nice-to-have,” not a necessity.


Lenders may consider applicants with a score of 620 or higher, though a score above 700 is preferable when qualifying for a second home mortgage. Naturally, lenders will also want to look at your credit history, taking into account any late mortgage payments, exorbitant credit card balances, and bankruptcies. The more you are extended with various debt payments, the higher risk you may be for the lender.

Debt-to-Income (DTI) Ratio

You’re not a stranger to this; you’ve been around the block before when you purchased your primary residence. Like last time, lenders will want to analyze your debt-to-income ratio—or the amount of money going out versus the money coming in.


You need to understand that this time your existing mortgage payment will be factored into your DTI, along with other monthly payment debts, including credit cards, student loans, and auto payments. Remember, too, that you cannot offset your DTI by factoring in any forward-looking rental income that you may be able to collect by renting out your second home. That would make this an investment property. Investment properties come with investment property mortgages, with a different set of mortgage requirements. 


When qualifying for a second home mortgage, lenders generally want to see that your debt, which would include your new mortgage, will represent 43% or less of your pre-tax monthly income. This number can sometimes vary depending on your credit score and down payment.

As with a primary mortgage, you can get pre-approved for a second home loan, so it’s always a good idea to talk to a loan officer before you enlist a real estate agent to search for properties.

Reserves

Things happen. Mortgage professionals know this more than anyone, which is why they like to see some liquidity from second home buyers. This comes in the form of reserve funds.

Well-qualified borrowers generally need to show at least two months of reserve funds that can cover both their primary and secondary mortgages, property taxes, and insurance should their income or employment change. Weaker borrowers and those who are self-employed may need to show six months of reserve funds.

Is a Second Home Right for You?

Though the process of qualifying for a second home mortgage isn’t that different from qualifying for a primary home, borrowers may face a little more scrutiny and tighter lending standards on these properties. You should also keep in mind that these homes may have tax implications, short-term rental restrictions, and additional condo or HOA fees. These are all things to consider when determining whether a second home is right for you.


Preferred Rate is always standing by to help with your housing-related needs. Give us a call today to go over your unique financial situation and the process of qualifying for a second home loan.

Six Ways to Beat Inflation by Buying a Home

February 2, 2023
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High inflation is no fun. Though everyone pays the same higher prices, periods of rising inflation don’t have the same impact on all Americans. A person’s investment strategy—including real estate, investments in the stock market and S&P 500, and their retirement plan—can be a good inflation hedge. 

While inflation slowly chips away at your dollar’s buying power, putting those dollars into investments can allow that money to grow faster than the rate of inflation. One of the best ways to beat inflation in 2023 is by buying a home—and we’ll show you how.

1. Lock in Your Interest Rate Now

The Federal Reserve combats high inflation by raising interest rates, thereby making it harder—and more expensive—to borrow money. So far this hasn’t done a lot to curb spending, and the Federal Reserve has made it clear that it intends to keep raising rates. This means borrowers who wait may face even higher rates. 

2. Buy Before Inflation Rises Again

As we mentioned, the actions of the Federal Reserve haven’t done enough to bring inflation down. Is there a threat that inflation will continue to rise? Absolutely. If and when that does happen, everything will get more expensive—including homes. Higher home prices mean larger loans, down payments, and closing costs, since all three of these are based on a percentage of the home’s price. It’s the ultimate example of a rising tide (aka rising inflation) lifting all boats. 

3. Stop Renting

Do you know what else is likely to go up during periods of high inflation? Rent. Because it’s a cost, right? So there’s a good chance it’ll head north as landlords use these rent increases to beat their inflation. Buying a home is a long-term investment that can save money—money that is currently only helping your landlord. Excellent inflation hedge for them; no help for you. 

Real estate is a part of any good, diversified investment strategy. Plus, it can lock in your expenses for the long term. No more worrying about rent increases or lease renewals. 

4. Utilize Preferred Rate’s Interest Rate Hack

Want to shave a few figures off the current advertised interest rates? You can with Preferred Rate’s interest rate hack. We have programs that will allow you to decrease your interest rate for either the life of the loan or the first two years. This can save money, prevent higher interest rates from crushing your dreams of homeownership, and allow you to make a long-term investment in your financial future, all while you beat inflation.

5. Appreciate Depreciating Debt

When you buy a home, that asset tends to appreciate in value over time (minus a few ebbs and flows inherent in the market). You know what does the opposite? Debt. Debt actually depreciates in value with the rate of inflation. 

Think about it this way: You know those folks who are always saying, “In my day, you could buy a home for $44,000”? Well, they’re not lying. Years and decades from now your debt will be worth far less. Your monthly mortgage payment won’t change, but with the rate of inflation, it will be worth less than it’s worth today. At the same time, your home is likely to go up in value. That’s a win-win, especially if you were renting before. 

6. Supplement Your Income with an Investment Property

Some Americans have extra cash lying around, becoming vulnerable to inflation because of the current economic uncertainties. If cash is sitting in a savings account earning next to nothing, then this much is certain: Inflation has won, and you’re no further ahead. 

Some people thinking about how to beat inflation have realized that an investment property may be the way to go, as that long-term investment can produce supplemental income. Extra income is extra appreciated with price increases, making this a smart inflation hedge. 

Every investment carries risks and rewards, and in a market like this, conditions can change in either direction—becoming more or less favorable. However, many individuals feel empowered when they take action. 

Though we can’t control periods of high inflation, we can respond to them by setting ourselves up for the best possible outcome. For some, that inflation hedge strategy will include locking in their investment costs, mortgage interest rate, and debt now to stave off any further price increases.

Preferred Rate has seen many market cycles, and we’re well-versed on the impacts of inflation. An experienced mortgage advisor is happy to talk anytime to determine if buying a home is the right move for you right now. 

Disclaimer: Preferred Rate – Partnered with American Pacific Mortgage is not a licensed CPA or financial planner. We advise you to consult your tax or legal professional as needed in order to make the right decision for you. Equal Housing Lender, NMLS #1850.

© 2023 Preferred Rate – Partnered with American Pacific Mortgage Corporation (NMLS 1850). All information contained herein is for informational purposes only and, while every effort has been made to ensure accuracy, no guarantee is expressed or implied. Any programs shown do not demonstrate all options or pricing structures. Rates, terms, programs, and underwriting policies are subject to change without notice. This is not an offer to extend credit or a commitment to lend. All loans are subject to underwriting approval. Some products may not be available in all states, and restrictions apply. Equal Housing Opportunity.

Can a Co-Signer Help Me Get a Better Mortgage?

August 31, 2022
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Mortgage rate increases have begun slowing down but there’s no getting around the fact that 3% mortgage rates are well in the rearview mirror. Higher mortgage rates turn into higher mortgage payments and for a lot of homebuyers, this means they can no longer afford houses with a higher price tag. Especially for first-time homebuyers who have been saving diligently over the past few years, watching mortgage rates rise can be discouraging. Asking a family member or friend to be a co-signer on a mortgage application could help you qualify for a better home loan.

If you’re ready to buy a home but the mortgage rates are pushing up faster than your savings account, a co-signer might be worth considering. A co-signer can help you meet some of the requirements for a home loan and may help you qualify faster. That said, having a co-signer on your mortgage isn’t always the best choice and there are a few restrictions to keep in mind.

This article can help.

When is a co-signer a good idea for a mortgage?

In general, most homebuyers benefit from a co-signer when they need a boost with their income, employment history, or credit score.

A good fit for a co-signer will be a person with a high credit score, steady income, stable employment history, and solid credit history. If you’re falling short in any of these four areas, then adding a co-signer to your mortgage application could help you get approved faster and secure better terms on your home loan.

In many cases, adding a co-signer to a mortgage application can help push your mortgage approval across the finish line, but it’s not a guarantee.

For example, if a mortgage applicant doesn’t have the means to pay back the mortgage or if the lender considers the homebuyer a high risk, adding a cosigner typically won’t sway the lender’s decision.

Connect with a local mortgage advisor to talk through your specific situation. You might be closer than you think to a great mortgage and the keys to your dream home.

Related: How to boost your credit score in 60 days

TOP 3 BENEFITS TO HAVING A CO-SIGNER ON A MORTGAGE

1. A co-signer can help you meet the credit score requirements.

In general, a cosigner will not be able to override negative marks in your credit history, such as bankruptcy or loan defaults. But a cosigner with a strong credit history can give your credit profile a bit of a bump if you land in the medium range. The typical mortgage lender will look at your mortgage application in its entirety to determine risk and decide if you’ll be able to pay back the loan as agreed.

If your credit score is in the midrange and you have a cosigner with a strong credit history, this reduces risk in the eyes of the mortgage lender. More importantly, it increases your chance to secure a great mortgage.

2. A co-signer can provide support to help you meet employment criteria.

If you have good employment but a short employment history, a cosigner with stable long-term employment can help you qualify for a preferred mortgage. In many cases, borrowers just beginning their career or starting a new career path might have a good employment profile, but it isn’t steady enough for the best mortgage. A co-signer can help boost your profile in this area.

Related: How to Qualify for a Mortgage if You’re Self-Employed

3. A co-signer may help you qualify for a larger home loan.

To qualify for a mortgage with a co-signer, the mortgage lender considers both incomes. For this reason, you might be able to qualify for a bigger home (and a better loan) by having a co-signer on your mortgage application. The co-signer will be responsible if the borrower defaults, so verifiable income for both parties is an important factor. That said, an individual borrower will only qualify if they have the independent resources to pay back the loan as agreed. Ultimately, the mortgage lender will decide the level of risk and whether or not they approve the mortgage application.

Who can qualify as a co-signer on a mortgage application?

To be eligible as a co-signer, the individual must be a family member close to the borrower. Family members such as parents, siblings, grandparents, aunts and uncles all qualify by definition. Family-type relationships are also eligible for a cosigner on a mortgage. For example, friends in this category would be someone you’ve had a close, long-term relationship with for most of your life, or someone you’ve lived with for an extended period of time.  

This requirement is in place to protect the borrower from having a cosigner who has divided interests. For instance, a real estate agent or a builder might want to be a cosigner since they would directly benefit if your mortgage application is approved. For this reason, non-family members are not eligible to cosign a mortgage.

Related: Buying a House With a Friend or Relative–Everything You Need to Know

3 THINGS A CO-SIGNER ON A MORTGAGE APPLICATION CAN’T DO 

A co-signer cannot make the minimum down payment on your behalf.

The homebuyer must meet the minimum requirements for making the down payment, typically 5% for most home loans. Fannie Mae sets this guideline, which requires that the home must be the borrower’s primary residence, and the loan-to-value ratio cannot exceed 95%. The cosigner can increase the down payment, but the resident borrower must provide the minimum down payment required.

A co-signer cannot improve your debt-to-income (DTI) ratio.

The homebuyer must meet the minimum requirements set by the lender for the DTI ratio. In most cases, mortgage lenders allow borrower’s a maximum DTI of 43%. This is your debt-to-income ratio. DTI is calculated by combining all recurring debt payments such as credit cards, car loans, and student loans and measuring the total debt against your income.

Therefore, even if your cosigner has ample assets and minimal debt, the main borrower must meet the loan requirement with a DTI ratio of less than 43%.

A co-signer cannot override or erase your credit history.

While a co-signer’s credit history can help boost your mortgage application, it cannot override substantial credit implications such as bankruptcy, foreclosure, or a credit score below 580. If you have a credit score in the mid-range, check out our recent post on how to boost your credit score in 60 days.

Are there risks to having a co-signer on a mortgage?

Deciding to ask a family member to cosign on a mortgage is a serious decision. For the most part, the co-signer takes on more risk than the designated borrower. This is because the cosigner will be legally responsible for the mortgage, along with the borrower, until the mortgage is paid off.

For this reason, the borrower should make every attempt to remove the cosigner from the mortgage as soon as reasonably possible. The best option is to refinance the mortgage as soon as the homeowner can qualify for their own mortgage.

In addition, the mortgage will be reflected on the cosigner’s credit report. As such, it will affect their buying power for future opportunities. Finally, late payments will be reflected on the credit reports for both the borrower and the cosigner as well. Download a free copy of your credit report here.

An important note–if the borrower defaults on the mortgage, the cosigner will be legally responsible for paying the loan obligations in full. If the cosigner isn’t on the title of the property (which is often the case), they will have to meet the financial obligation with their own assets.

Taking Action

One of the best first steps you can take is to start your mortgage application. Once you’ve started the process, talk with your mortgage advisor about adding a co-signer. Adding a co-signer to a mortgage application can be a difficult decision but it may help you qualify for a better mortgage. We can guide you through the process and help you determine if a co-signer on your mortgage will help you qualify for a preferred home loan. Either way, discussing your options can give you a jump start on your mortgage goals. Connect with a local mortgage advisor to get started. We’d love to help.

Should You Have a Co-Signer on a Mortgage?

October 12, 2021
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Adding a co-signer on a mortgage application could help you qualify for a better home loan. Mortgage rates are still low and no one knows how long it will last. If you’re ready to buy a home but in a tough financial position, you may have considered applying for a mortgage with a co-signer. A co-signer can help you meet some of the requirements for a home loan, but not all of them.

When is a co-signer a good idea for a mortgage?

In general, most homebuyers benefit from a co-signer when they need a boost with their income, employment history, or credit score. A good fit for a co-signer will be a person with a high credit score, steady income, stable employment history, and solid credit history. If you’re falling short in any of these four areas, then adding a co-signer to a mortgage application could help you get approved and secure better loan terms.

In many cases, adding a co-signer to a mortgage can help push your mortgage application across the finish line, but it won’t make up for everything. For example, if a mortgage applicant doesn’t have the means to pay back the mortgage or is considered too high risk by the lender, adding a cosigner typically won’t sway the lender’s decision.

Related: How to boost your credit score in 60 days

TOP BENEFITS TO HAVING A CO-SIGNER ON A MORTGAGE

1. Provide flexibility with credit score requirements

In general, a cosigner will not be able to override negative marks in your credit history, such as bankruptcy or loan defaults. But a cosigner with a strong credit history can give your credit profile a bit of a bump if you land in the medium range. The mortgage lender is looking at the mortgage application in its entirety to determine risk and decide if you’ll be able to pay back the loan as agreed. If your credit score is in the midrange and you have a cosigner with a strong credit history, this reduces risk in the eyes of the mortgage lender.

2. Provide backup with employment requirements

If you have good employment but a short employment history, a cosigner with stable long-term employment can help you qualify for a preferred mortgage. In many cases, borrowers just beginning their career or starting a new career path might have a good employment profile, but it isn’t steady enough for the best mortgage. A co-signer can help boost your profile in this area.

Related: How to Qualify for a Mortgage if You’re Self-Employed

3. Opportunity for a larger home loan

To qualify for a mortgage with a co-signer, the mortgage lender considers both incomes. For this reason, you might be able to qualify for a bigger home (and a better loan) by having a co-signer on your mortgage application. The co-signer will be responsible if the borrower defaults, so verifiable income for both parties is an important factor. That said, a borrower will only qualify if they have the resources to pay back the loan as agreed. Ultimately, the mortgage lender will decide the level of risk and whether or not they approve the mortgage application.

Who can qualify as a co-signer on a mortgage application?

To be eligible as a co-signer, the individual must be a family member close to the borrower. Family members such as parents, siblings, grandparents, aunts and uncles all qualify by definition. Family-type relationships are also eligible for a cosigner on a mortgage. For example, friends in this category would be someone you’ve had a close, long-term relationship with for most of your life, or someone you’ve lived with for an extended time.  

This requirement is in place to protect the borrower from having a cosigner who has divided interests. For instance, a real estate agent or a builder might want to be a cosigner since they would directly benefit if your mortgage application is approved. For this reason, non-family members are not eligible to cosign a mortgage.

Related: Buying a House With a Friend or Relative–Everything You Need to Know

3 THINGS A CO-SIGNER ON A MORTGAGE CAN’T DO 

A co-signer cannot make the required down payment.

The homebuyer must meet the minimum requirements for making the down payment, typically 5% for most home loans. Fannie Mae sets this guideline, which requires that the home must be the borrower’s primary residence, and the loan-to-value ratio cannot exceed 95%. The cosigner can increase the down payment, but the resident borrower must provide the minimum down payment required.

A co-signer cannot change your DTI (debt-to-income) ratio.

The homebuyer must meet the minimum requirements set by the lender for the DTI ratio. In most cases, mortgage lenders allow borrower’s a maximum DTI of 43%. This is your debt-to-income ratio. DTI is calculated by combining all recurring debt payments such as credit cards, car loans, student loans and measuring against your income. Therefore, even if your cosigner has ample assets and low debt, the residential borrower must meet the loan requirement with a DTI ratio less than 43%.

A co-signer cannot override your credit history.

While a co-signer’s credit history can help boost your mortgage application, it cannot override substantial credit implications such as bankruptcy, foreclosure, or a credit score below 580. If you have a credit score in the mid-range, check out our recent post on how to boost your credit score in 60 days.

What are the risks to having a co-signer on a mortgage?

Deciding to ask a family member to cosign on a mortgage is a serious decision. The cosigner will be legally responsible for the mortgage, along with the borrower, until the mortgage is paid off. For this reason, the borrower should make every attempt to remove the cosigner from the mortgage as soon as reasonable. The best option is to refinance the mortgage as soon as they can qualify.

In addition, the mortgage will be reflected on the cosigner’s credit report. As such, it will affect their buying power for future opportunities. Finally, late payments will be reflected on the credit reports for both the borrower and the cosigner as well. Download a free copy of your credit report here.

An important note–if the borrower defaults on the mortgage, the cosigner will be legally responsible for paying the loan obligations in full. If the cosigner isn’t on the title of the property (which is often the case), they will have to meet the financial obligation with their own assets.

Next Steps

Adding a co-signer to a mortgage application can be a difficult decision. We can guide you through the process and help you determine if a co-signer on your mortgage will help you qualify for home loan. Either way, discussing your options can give you a jump start on your mortgage goals. Connect with a local mortgage advisor to get started. We’d love to help.

Get Rid of PMI and Lower Your Mortgage Payment

August 10, 2022
mortgage blog, get rid of PMI, preferred rate

There are four practical ways to get rid of PMI (private mortgage insurance), and each path has slightly different requirements. But they all have the same main benefit: to get rid of PMI payments for good. For most homeowners, getting rid of PMI results in a lower mortgage payment which is always good news. That extra cash can help with monthly expenses, add to your savings, or build wealth through investing.

First things first, to get rid of PMI, most homeowners will need to cross two thresholds: own your home for at least two years and have at least 80% equity in your home. Government-backed mortgages and private lenders have slightly different rules when it comes to mortgage insurance requirements though. Talking with a mortgage advisor can offer a clear-cut understanding of your best options based on your current mortgage and eligibility.

Private Mortgage Insurance

Private mortgage insurance (PMI) is designed to protect the lender, not the borrower. So, at first glance it can feel like an undue cost and a burden to new homeowners. After all, PMI increases your mortgage payment without paying down the principal. Homebuyers can typically expect to pay between $30-$70 per month for every $100k borrowed on a mortgage.

But PMI often benefits homebuyers by providing a fast path to homeownership, especially for first-time homebuyers. The fact is, PMI is a common requirement for most homeowners who purchase a home with less than 20% down.

Getting approved for a 3% down payment mortgage might require PMI, but a mortgage can also provide financial stability and a predictable monthly payment. As a new homeowner, you can stop renting and start building home equity right away.

TOP 4 WAYS TO GET RID OF PMI

 1. Pay down your mortgage until you hit 78% equity.

For conventional home loans which aren’t government-backed, PMI often falls off automatically once your loan-to-value ratio drops below 78%. This is a default path that measures your original home loan against your original home appraisal.

However, you can pay down your mortgage faster if you want to reach that threshold sooner. Just remember to designate your extra payments toward principal and not as a general payment (which could be applied to both principal and interest).

Worth noting, the loan-to-value ratio does not take rising home values into consideration. If the value of your home has risen well above the original purchase price, consider requesting a formal appraisal, which we blogged about here.

2. Make a formal request to cancel PMI.

If you don’t want to wait until your LTV ratio meets the 78% benchmark, you can make a formal request to get rid of PMI once you have at least 80% equity in your home.

To get rid of PMI without refinancing your mortgage, contact your mortgage lender directly and make a formal request. Again, the 80% equity is determined by your loan-to-value ratio, which measures your current mortgage balance against the original home appraisal when you purchased your home.

If the value of your home has increased substantially since your purchase date, it might be worth it to request a formal home appraisal.

RELATED: Know when to refinance an FHA loan to a Conventional loan

3. Get rid of PMI by refinancing your mortgage.

While mortgage rates are still low, refinancing your mortgage to get rid of PMI can be a smart move. Refinancing your mortgage will trigger a new home appraisal, which is beneficial if your home has increased in value since your purchase date. What’s more, refinancing allows you to bring updated credentials to the table, such as higher income or a better credit score.

If it’s been at least two years since your mortgage closed and you’re in a stronger position as a borrower, refinancing your mortgage could save you the most money. Just remember, you’ll face closing costs when you refinance a mortgage. Connect with a mortgage advisor to decide if it’s the best fit.

4. Initiate a request for a current home appraisal. 

If you haven’t paid down your mortgage, but your home has appreciated in value, requesting a home appraisal might be worth it. For this plan of action, you need to be a homeowner for at least 5 years with 80% equity or at least 2 years with 75% equity.

These guidelines are in place to protect lenders from market volatility. For example, homes that increase well above market value in a short period of time then drop in value later, increasing the risk that a borrower might default.

For a new appraisal, also remember that you’ll still need to qualify for your mortgage. All things being equal, an updated appraisal might help you cross the 80% home equity threshold sooner. But if you have changes in employment, income, credit rating, or other credentials, requesting an updated appraisal may end up costing you the fee without being able to get rid of PMI.

RELATED: 7 Ways to Increase the Value of Your Home

A Final Caveat to Get Rid of PMI

Many home loans that include PMI require a portion to be paid upfront at closing. Usually, homeowners want to get rid of PMI to lower their mortgage payments. But the cost of refinancing might overshadow the benefits of eliminating PMI and end up costing you more in the long run.

The best first step is to discuss your financial goals with a financial advisor and connect with a local mortgage expert. There are a number of home loan options and mortgage refinance programs that could save you more money on your mortgage. Getting rid of PMI is one of many considerations. 

Taking Action

Consider whether now is the right time to get rid of PMI for good. Refinancing your mortgage, paying down the balance, or getting your home newly appraised can help you get rid of PMI and lower your mortgage payment. We can determine your eligibility and help you decide which path will save you the most money. Connect with a local mortgage advisor to get started. We’d love to help.

4 Ways to Get Rid of PMI and Lower Your Mortgage Payment

October 5, 2021
blog business woman at desk

There are four practical ways to get rid of PMI (private mortgage insurance), and each path has slightly different requirements. But they all have the same main benefit: to get rid of PMI payments for good. For most homeowners, getting rid of PMI results in a lower mortgage payment which is always good news. That extra cash can help with monthly expenses, add to your savings, or build wealth through investing.

First things first, to get rid of PMI, most homeowners will need to cross two thresholds: own your home for at least two years and have at least 80% equity in your home. Government-backed mortgages and private lenders have slightly different rules when it comes to mortgage insurance requirements though. Talking with a mortgage advisor can offer a clear-cut understanding of your best options based on your current mortgage and eligibility.

When is Private Mortgage Insurance a Good Thing?

Private mortgage insurance (PMI) is designed to protect the lender, not the borrower. So, at first glance it can feel like an undue cost and a burden to new homeowners. After all, PMI increases your mortgage payment without going toward any principal. Homebuyers can typically expect to pay between $30-$70 per month for every $100k borrowed on a mortgage.

But PMI often benefits homebuyers by providing a faster path to homeownership, especially for first-time homebuyers. The fact is, PMI is a common requirement for most homeowners who purchase a home with less than 20% down.

Getting approved for a 3% down payment mortgage might require PMI, but a mortgage provides financial stability with a predictable monthly payment. As a new homeowner, you can stop renting and start building home equity right away.

BEST 4 WAYS TO GET RID OF PMI

 1. Pay down your mortgage until you hit 78% equity.

For conventional home loans which aren’t government-backed, PMI often falls off automatically once your loan-to-value ratio drops below 78%. This is a default path which measures your original home loan against your original home appraisal.

However, you can pay down your mortgage faster if you want to reach that threshold sooner. Just remember to designate your extra payments toward principal and not as a general payment (which could be applied to both principal and interest).

Worth noting, the loan-to-value ratio does not take rising home values into consideration. If the value of your home has risen well above the original purchase price, consider requesting a formal appraisal, which we blogged about here.

2. Make a formal request to cancel PMI.

If you don’t want to wait until your LTV ratio meets the 78% benchmark, you can make a formal request to get rid of PMI once you have at least 80% equity in your home.

To get rid of PMI without refinancing your mortgage, contact your mortgage lender directly and make a formal request. Again, the 80% equity is determined by your loan-to-value ratio, which measures your current mortgage balance against the original home appraisal when you purchased your home.

If the value of your home has increased substantially since your purchase date, it might be worth it to request a formal home appraisal.

RELATED: Know when to refinance an FHA loan to a Conventional loan

3. Get rid of PMI by refinancing your mortgage.

While mortgage rates are still low, refinancing your mortgage to get rid of PMI can be a smart move. Refinancing your mortgage will trigger a new home appraisal, which is beneficial if your home has increased in value since your purchase date. What’s more, refinancing allows you to bring updated credentials to the table, such as higher income or a better credit score.

If it’s been at least two years since your mortgage closed and you’re in a stronger position as a borrower, refinancing your mortgage could save you the most money. Just remember, you’ll face closing costs when you refinance a mortgage. Connect with a mortgage advisor to decide if it’s the best fit.

4. Initiate a request for a current home appraisal. 

If you haven’t paid down your mortgage, but your home has appreciated in value, requesting a home appraisal might be worth it. For this plan of action, you need to be a homeowner for at least 5 years with 80% equity or at least 2 years with 75% equity.

These guidelines are in place to protect lenders from market volatility. For example, homes that increase well above market value in a short period of time then drop in value later, increasing the risk that a borrower might default.

For a new appraisal, also remember that you’ll still need to qualify for your mortgage. All things being equal, an updated appraisal might help you cross the 80% home equity threshold sooner. But if you have changes in employment, income, credit rating, or other credentials, requesting an updated appraisal may end up costing you the fee without being able to get rid of PMI.

RELATED: 7 Ways to Increase the Value of Your Home

A Final Caveat to Get Rid of PMI

Many home loans that include PMI require a portion to be paid upfront at closing. Usually, homeowners want to get rid of PMI to lower their mortgage payments. But the cost of refinancing might overshadow the benefits of eliminating PMI and end up costing you more in the long run.

The best first step is to discuss your financial goals with a financial advisor and connect with a local mortgage expert. There are a number of home loan options and mortgage refinance programs that could save you more money on your mortgage. Getting rid of PMI is one of many considerations. 

Next Steps

Consider whether or not now is the right time to get rid of PMI for good. Refinancing your mortgage, paying down the balance, or getting your home appraised can help you get rid of PMI and lower your mortgage payment. We can determine your eligibility and help you decide which path will save you the most money. Connect with a local mortgage advisor to get started. We’d love to help.