A father and son talking on the couch

A guide for first-time homebuyers with a parent co-signer

As a first-time homebuyer, a parent co-signer gives you an opportunity to start investing in your future and building home equity sooner. When a parent co-signs your mortgage, it can increase your chances of being approved for a loan, especially if you have the income to make monthly mortgage payments but haven’t established credit. If your parent co-signer has a strong credit history and income, they may also help you secure a loan with better terms and interest rates, saving you money in the long run.

This guide will explain the benefits and considerations of being a first-time homebuyer with a parent co-signer and give you tips on how to make the process go smoothly. Whether you’re looking to buy your first home or co-sign a mortgage for your child, we’re here to provide valuable information to help you make informed decisions to reach your family’s homeownership goal.

Can I get a mortgage with my parents?

Over half of all parents are willing to co-sign their child’s mortgage, and seven percent have done so in the past. One main advantage of getting a mortgage with your parents is that you’ll have a place to live while building your credit rating. However, not every parent can co-sign on a mortgage, so it’s essential to make sure any potential co-signer meets your lender’s income, debt-to-income ratio and credit requirements.

What’s the difference between a co-signer versus a co-borrower?

When you take out a mortgage with someone else, you’re both responsible for paying it back. However, there are some key differences between the two roles. A co-borrower makes monthly payments from the start of the loan, just like the primary borrower.

On the other hand, a co-signer is only responsible for making payments on the loan if you miss payments or can’t pay it back. A co-signer also doesn’t have their name on the property title and has no ownership rights to the home—they’re just there to help you out. Because co-signers are willing to be on the mortgage but will not live in the home, they’re often called “non-occupant co-borrowers.”

Sharing a mortgage with family

If you’re considering asking someone to be a co-borrower or co-signer on a mortgage, be sure to discuss the loan terms carefully and ensure that they understand the responsibility.

Benefits for you and your parent co-signer

When your parents co-sign your mortgage, they essentially lend you their creditworthiness and financial stability. In addition to helping you qualify for a loan and increasing the chances of loan approval, there are also some advantages for co-signers. For example, paying your monthly mortgage on time builds their credit and adds to their good payment history.

Co-signing considerations

Co-signing a mortgage comes with responsibility. A parent co-signer isn’t just providing a credit reference or vouching that you will make your monthly mortgage payments. In addition to the risks below, by signing a loan document, a co-signer is legally obligated to meet any missed payments immediately if you cannot.

  1. Credit score: If you can’t make the mortgage payments, it could hurt your parent’s credit score, making it harder for them to qualify for loans or lines of credit in the future.
  2. Financial stability: Missed mortgage payments can strain your parent’s finances, particularly if they’re retired or on a fixed income.
  3. Increased responsibility: Despite being responsible for the monthly payments, your parent has no property rights or ownership interest in your home.

Having a parent co-sign your home loan is a big decision. Carefully consider the potential risks and benefits and clearly understand your responsibilities before moving forward. Your loan officer can help you figure out which options would make the most sense for you.

Process for parents co-signing a mortgage

Before you even begin shopping for a home, it’s best to contact your local loan officer to discuss the details and requirements of a co-signing arrangement.

Whether you choose a co-borrower or a co-signer, you’ll apply for a loan together. Approval is based on combined income and assets; typically, the lower middle score from each applicant’s credit score is pulled from all three credit bureaus.

FHA parental co-signer requirements

The Federal Housing Administration (FHA) allows parents to help their children qualify for an FHA loan as co-borrowers or co-signers. The requirements for this process include verification that a parental co-signer must have a credit score that meets the FHA’s minimum requirement and a debt-to-income ratio (DTI) within the FHA’s guidelines. In addition, parent co-signers must be able to show that they have sufficient income to cover the mortgage payment if you’re unable to make the payment.

Affordable lending alternatives to a parent co-signer

Even if you don’t have a co-signer, many affordable financing options may help you qualify on your own. FHA, FNMA HomeReady® and FHLMC Home Possible® mortgages are designed for low-to-moderate income borrowers with less-than-perfect credit and limited cash for a down payment.

In addition, Guild Mortgage offers programs that allow you to customize a loan to be specific to your needs.

Complete Rate analyzes consistent income deposits and payments, including rental payment history, to provide a better interest rate for borrowers with no traditional credit score.

With as little as three percent down, receive a $2,000 eGift Card to The Home Depot®, plus $500 to $1,500 toward closing or down payment.*

From securing your earnest money to locking in your rate for 120 days** while shopping for a home, your purchase is protected with Guild Mortgage’s four-pack of guarantees. For full terms and conditions, visit www.guildmortgage.com/homebuyer-protection/.

If you’re looking for more information on buying your first home, we’ve put together a mortgage loan guide that includes answers to common questions, educational advice and helpful links on the home loan process.

*In the state of ​​NV, the consumer receives a $2,000 lender credit in lieu of a gift card. Payment subject to maximum allowable lender credit and minimum contribution requirements. Some loans require a minimum cash investment by the borrower, which may limit the amount of any lender credit or payment by Guild under the offer. Freddie Mac BorrowSmartSM down payment/closing cost assistance amounts of $1,500, $1,000 or $500 based on Area Median Income and other eligibility criteria. $1,000 assistance applies to manufactured homes.
**Upfront lock-in fee required at the time of lock.
Guild Mortgage is not affiliated with The Home Depot®. The Home Depot® is not a sponsor of this promotion. The Home Depot® is a registered trademark of Home Depot Product Authority, LLC. All rights reserved.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.