When it comes to obtaining a mortgage, having a co-applicant can be a helpful strategy for many borrowers. A co-applicant is essentially a second borrower who applies for the mortgage alongside the primary borrower. The co-applicant is equally responsible for repaying the loan, and their income, credit history, and other factors are taken into account when assessing the application.
The benefits of having a co-applicant
The benefits of having a co-applicant on a mortgage application can be significant. Here are some of the most notable advantages:
- Increased chances of approval: If the primary borrower has a low credit score, a high debt-to-income ratio, or other factors that make them a risky borrower, having a co-applicant with a strong credit score and income can help increase the chances of approval.
- Higher borrowing power: With a co-applicant, the total income of both borrowers can be taken into account, potentially increasing the amount that can be borrowed. This can be particularly helpful for first-time homebuyers who may not have a large income or savings.
- Lower interest rates: When both borrowers have good credit scores and other favorable factors, lenders may be more willing to offer a lower interest rate on the mortgage. This can result in significant savings over the life of the loan.
- Sharing the financial responsibility: With a co applicant, both borrowers are equally responsible for making the monthly mortgage payments. This can be helpful in situations where one borrower may not have the ability to make the payments on their own.
Potential drawbacks to having a co-applicant
However, it’s important to note that there are also potential drawbacks to having a co applicant. Here are some of the potential risks:
- Both parties are equally responsible for the loan: This means that if one borrower is unable to make their payments, the co-applicant will be held responsible for making the payments in full. This can strain relationships and create financial difficulties if one party is unable to contribute.
- Joint ownership of the property: In most cases, both borrowers will be listed as joint owners of the property. This means that both parties will have equal rights to the property, and any decision regarding the property will need to be made jointly.
- The potential impact on credit scores: If one borrower fails to make their payments, it can negatively impact both borrowers’ credit scores. This can make it more difficult to obtain future credit.
Overall, having a co applicant on a mortgage application can be a smart strategy for many borrowers. However, it’s important to carefully consider the potential risks and benefits before making a decision. If you’re considering applying for a mortgage with a co applicant, it’s a good idea to consult with a mortgage professional who can help you weigh your options and make an informed decision. Call Abo Capital today to discuss your real estate venture at (310) 984-8028, we’ve helped thousands navigate the lending process for over 35 years.