Over 600,000 homes sold in 2019. That's 10.3% more than in 2018.
The last time Congress raised the federal minimum wage was in 2009. With more people than ever shopping for their first home, yet living wages remaining stagnant, taking out a loan becomes a necessity for most people.
To get a loan, you need great credit and a stable income to assure lenders you can afford your mortgage payments each month. However, almost a third of Americans have bad credit.
The combination of poor credit and a low income is why you might need a cosigner to help them secure a loan. In this guide, we’ll explore the differences between a co-borrower and cosigner, and the qualities you should look for in both.
Ready to be a homeowner? Use the Cher App to find a co-borrower.
What Is a Co-Borrower?
A co-borrower differs from a cosigner in that they are borrowing money alongside the other person. Co-borrowers both receive the loan.
Co-borrowers share the responsibility of paying off the debt. A cosigner only has to repay the loan if the primary borrower defaults. A co-borrower receives a portion of the loan and must make equal payments each month alongside the other co-borrower.
Co-borrowers can also take out joint loans to purchase a single asset. So if two co-borrowers take out a loan for a home mortgage, then both people will have their names on the title for the house.
What Is a Cosigner?
A cosigner is someone who can help you qualify for a loan when you can't obtain it by yourself.
The lender considers the cosigner's credit score and income. The cosigner's income must be considerably higher than that of the primary borrower to assure the mortgage lender they'll make their money back.
If the primary borrower defaults on payments, then legal responsibility falls to the cosigner to pay off the debt. The cosigner could suffer a huge hit to their credit score and even be harassed by collection agencies in lieu of the primary borrower. (Cosigners also do not receive any equity from appreciation, so they might find themselves in a lose-lose situation.)
8 Qualities to Look for If You Need a Cosigner or Co-Borrower
Finding a cosigner or co-borrower can be a daunting task. You’re asking another person to take on a gigantic risk.
It’s also important to make sure you find a reliable person you can trust to be your cosigner or co-borrower. The Cher App helps you find these people. Ideally, your cosigner or co-borrower will be someone you have a solid and trusting relationship with because it’s easy for debt to sour on people and create friction.
Here are eight qualities you should take into consideration during your search:
1. Reliable Financial History
If your own personal work history isn’t the best, then your cosigner or co-borrower's financial history is all the more important.
A lender wants to be assured that payments will be made on time and in full every month. A single missed payment can have a negative impact on your credit score in a big way. It's common for a missed payment to cause a credit drop of between 60 to 110 points.
The lender will look for your cosigner or co-borrower to have held their current job for over a year, and that they have a history of making payments on time.
Cosigning or co-borrowing for a loan is a huge commitment. Don't be surprised if it takes a bit of convincing on your part to get a hesitant person to agree to help you out. They have as much or more to lose from cosigning or co-borrowing as you do.
You should establish a solid level of trust with anyone who is cosigning or co-borrowing for you. Be truthful and let the person know:
- you understand the risk they're taking on
- what you need the loan for
- why you are in need of a cosigner or co-borrower
- how you intend to make payments each month
The more information you can provide your cosigner or co-borrower, the higher the chance they'll agree to help. Remember that this isn't a small favor you're asking for, but a huge risk.
3. A Good Relationship or Verification
While you’re trying to find a cosigner or co-borrower, make a list of everyone in your life that you have a good relationship with. Then begin the process of whittling the list down.
If you can’t locate a friend or family member who is able or willing to help you secure a loan, then try finding someone verified through Cher. Cher has a patented algorithm that will conduct soft credit pulls, ID verification, and perform a criminal background check to find you a safe and reliable co-borrower that suits your home buying needs.
4. Similar Income Level
The income level is another aspect that a lender will study before deciding whether to approve or reject your application.
While searching for a co-borrower, you’ll want to find someone who has an income level that is similar to your own. If you're searching for a co-signer, their income level should be substantially higher than your own. A lender wants to be reassured that even if you as the primary borrower default on payments, they’ll still be able to collect their money from the cosigner.
5. Similar Taste in Homes
If you are using a co-borrower to help you secure your loan, then that means they’ll be living with you in the same home. Their name will also be on the title for the house.
To ensure things go as smooth as possible, find a co-borrower whose tastes match yours when it comes to homes. Both parties need to be able to agree on the style and type of home in order for things to progress well.
6. Similar Investment Goals
Just as you want to find a cosigner or co-borrower who has a similar taste in homes, you’ll also want someone with the same investment goals as you.
If a person has investment goals similar to you, this will ensure that no fights break out over money. If you’re living in the same home as your co-borrower, there’ll be enough stress to go around without adding concerns over how a person is spending their money.
7. Compatible Living Habits
If you intend to have a co-borrower for your loan and live in the same home, having compatible living habits might be one of the more important factors to consider.
Living with another person can be difficult. If you’re accustomed to living alone, the switch to communal living can be hard to adjust to.
Make sure to consider your personality and that of the co-borrower. Do you prefer a quiet lifestyle? Is your ideal evening staying in and binge-watching your favorite Netflix show? If so, you may not want to live with a person who enjoys throwing huge parties and having friends over every night.
8. Good Credit Score
To get approved by a lender, you’ll want to find a cosigner or co-borrower who has a good credit score.
Credit scores range from 300 to 850. A “good” credit score is considered 700 and above. The higher your credit score, the more options you will have.
A high credit score can affect certain details of your loan. For example, if your cosigner has an excellent credit score, your interest rate for the loan might be lower.
Should a Co-Borrower Be a Friend or Family Member?
You have a multitude of options at your disposal when it comes to deciding who is your co-borrower.
If you believe you’d be the most comfortable with a friend or family member as your co-borrower, then make a list of everyone you know and then choose the best candidate who matches your desired profile.
Friends and family do bring drawbacks, however. Relationships with friends can be ruined over things like money and bills. Family can drag in drama and create extra strain on top of everyday stresses.
If you want to avoid having a friend or relative as your co-borrower, then look for vetted people through services like Cher. You’ll meet a new friend this way, without the worry and stress of losing a lifelong relationship with someone you’ve known since grade school.
People are finding verified co-borrowers through online services more often in this new digital age, so be sure to keep your options open to this possibility.
How to Find a Cosigner
Finding a cosigner or co-borrower is easier than ever in the digital age.
Services like Cher are able to run background checks on people, check their credit score, and so much more. These services help to ensure you’re able to find a safe and reliable co-owner for your new home.
If you’re new to an area and far from any friends or relatives, Cher can be a lifesaver. No longer are your options restricted. With Cher, a whole host of opportunities are opened up for your consideration.
Once you find a verified cosigner or co-borrower, be sure to interview them in person to make sure you’re both compatible. Go through a checklist of personality traits and goals with them to see if your interests align. The more similar you and the other person are, the more successful your venture will be in co-owning a brand new home.
Verified People, Verified Success
If you need a cosigner or co-borrower, make use of online services like Cher that can verify people on your behalf. Cher runs background checks on all of its users to help ensure the safety of all involved.
Using Cher is simple and straightforward (as demonstrated in this introductory video), so take the plunge today in finding yourself a cosigner or co-borrower. If you have any lingering questions, search through our Frequently Asked Questions page, then sign up today!