- A cosigner is an individual who agrees to be responsible for the mortgage if the primary borrower cannot make the loan payments. When applying for a loan with a cosigner, both the cosigner and the primary borrower will have to submit a credit application. However, the cosigner is not an owner of the property used to secure the mortgage. Cosigners are useful in situations where the borrower does not qualify for the loan on his own due to bad credit or insufficient assets.
- Cosigners for FHA loans usually need to be blood relatives of the primary borrower. However, non-relatives can sometimes act as cosigners if the primary borrower can show that he has a significant, established relationship with the cosigner. Cosigners must also meet all of the same general credit requirements as the primary borrower. Most lenders will accept a cosigner even if the cosigner has his own FHA loan, as long as he meets the standard FHA requirements.
- Most FHA loans require at least a 3.5 percent down payment. As of 2011, the new mortgage payment must be no more than 29 percent of the borrower's gross monthly income, and the borrower's total monthly debt can be no more than 41 percent of his gross monthly income. FHA lenders will consider the borrower's credit history before approving a loan. However, borrowers with credit problems may still qualify for an FHA mortgage if they meet the other requirements.
- A cosigner can help a borrower to qualify for an FHA loan. However, the full debt of the mortgage will appear on the cosigner's credit report. If the primary borrower defaults on the mortgage, the missed payments will appear on the cosigner's credit report as well. In cases where a primary borrower has good credit but cannot make a sufficient down payment, it may be better for a potential cosigner to give a financial gift instead of cosigning the loan.
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