Co-Borrower Vs. Co-Signer: The Difference Explained

If you have bad credit (or haven't had a chance to establish credit) or a too-high debt-to-income ratio (DTI), you may need a co-borrower or co-signer to help you achieve your homeownership goals.

But what exactly is a co-borrower versus a co-signer? And which person will you need on your team to make your goals a reality? Let's look at the difference between a co-signer and a co-borrower so you know which partnership suits your situation best.

Co-Borrower Vs. Co-Signer: At A Glance

Are you asking yourself, "Co-signer versus co-borrower? What should I choose?" 

If you know you'll need someone to help you qualify for and pay for a mortgage, it's a valid question. A co-borrower applies for a loan with you and shares joint repayment responsibilities.

The main difference between a co-borrower and co-signer comes down to ownership. Take a look at the table, which outlines the main differences below.

The main difference between a co-signer and a co-borrower comes down to the amount of responsibility each has with the loan. A co-borrower is equally responsible for the loan and is expected to make payments on it, whereas a co-signer is only required to make payments if a borrower can't.

What Is A Co-Signer?

A co-signer agrees to use their financial strength and credit score to help you qualify for a mortgage, possibly even a mortgage with better terms. When someone co-signs a loan, they accept the financial responsibility for the mortgage if you default or stop making your payments on time.

They are not required to help you make mortgage payments every month. They expect only to step in if you stop making your payments.

Benefits Of Using A Co-Signer

The major benefit of using a co-signer is that a co-signer's credit history carries just as much weight as a co-borrower's, meaning you may qualify for better mortgage terms (such as a lower interest rate) like you can with a co-borrower. It's extremely beneficial if you know your credit or other factors aren't in tip-top shape.

Another perk: Co-signers don't have an ownership interest in the property, which means you, as the primary borrower, can do whatever you want with your property without asking their permission.

Risks Of Using A Co-Signer

Co-signing could hurt a co-signer’s credit score. Any time you apply for a loan, lenders check your credit, causing your credit score to dip, and co-signing is no exception.

Co-signers are legally responsible for the loan. If you fail to make payments, they must take over the mortgage. Making your payments could potentially strain their budget and also your relationship.

When Does Using A Co-Signer Make Sense?

Using a co-signer might make sense if the person considering co-signing is a family member or has a very close relationship with the primary borrower. However, it could be worth it if a co-signer has a vested interest in boosting the primary borrower's chances of getting a mortgage loan.

What Is A Co-Borrower?

A co-borrower is someone who plans to purchase and live in the home with a primary borrower. Once your application is approved, co-borrowers and primary borrowers both have the same mortgage responsibilities and can use the property as they see fit.

Benefits Of Using A Co-Borrower

A co-borrower allows you to share costs when buying and maintaining the property. In other words, they're in it with you, meaning they are vested in ensuring the mortgage payments get paid on time.

You'll also look stronger together – just like how the general benefits of teamwork can work in your favor. Your lender will look at both the co-borrower's finances and yours, potentially leading to a larger loan or better interest rate.

You can also split costs with a co-borrower, including closing costs and the down payment amount.

Risks Of Using A Co-Borrower

When two names go on the title, both individuals have legal rights to the property and must agree to sell or refinance. For example, the primary owner can't decide to sell the house if their co-borrower leaves town for a month.

Owning a home can also strain relationships, particularly if the responsibilities of owning a home start to become too much. It can involve upkeep, a significant financial commitment and more.

When Does Using A Co-Borrower Make Sense?

Inviting a co-borrower to help you get a mortgage likely makes the most sense if you have a close friend, spouse or partner you want to buy a home and live with. In this case, they will likely help you take care of the home and help you make the mortgage payments.

How Are Co-Borrowers And Co-Signers Similar?

You may wonder whether co-signers and co-borrowers have any similarities at all, and they do:

• Both take responsibility for the loan. Co-borrowers and co-signers both take financial responsibility for paying a loan.
• Both strengthen a mortgage application. Have you ever heard the term "two heads are better than one?" In this case, most of the time, two applicants are usually better than one because your lender will see two incomes and two credit profiles.
• Both can help borrowers get a higher loan limit or a better interest rate. Whether you choose a co-borrower versus a co-signer mortgage option, you may be able to walk away with better terms.

How Are Co-Borrowers And Co-Signers Different?

Co-borrowers and co-signers differ in:

• What they get in return: Co-signers accept risk without reward, because they don't end up with the home, forgo opportunities to build equity (the amount of home you own) and cannot benefit financially from the sale of the property in the future.
• Whether they have ownership interest in the property: Co-signers have no ownership interest, while co-borrowers do.
• Whether they must make monthly payments: Co-signers are not expected to make regular monthly payments, while co-borrowers are expected to help with monthly mortgage payments. Co-signers assume mortgage payment responsibility only when (and if) the primary borrower defaults, but co-borrowers assume payments once all parties close on the loan.
• What they pay for fees and payments: Co-borrowers will make closing costs and down payments with the primary borrower, while co-signers do not have to do so.

Choosing Between A Co-Signer And Co-Borrower

How do you determine whether a co-signer or co-borrower makes the most sense for your situation? If you need someone with good credit to help you qualify for a mortgage, the decision may be easy if you have a spouse or partner willing to go in on a mortgage application.

However, if you aren't planning on a loved one or good friend moving in with you, you may want to ask a family member or friend to co-sign your loan to strengthen your application. The decision between co-signing and co-borrowing is personal, think through all the possibilities before you decide.

Considerations To Make Before Co-Signing Or Co-Borrowing A Loan

One of the most important things you can do is to consider your relationship before you co-sign or co-borrow. Either way, is it the right move for your friendship or relationship? If you have reservations, consider that before you ask.

Also, put yourself in the other individual's shoes – consider the impact on the other individual's credit and finances if you stop making your loan payments. It won't just impact your credit if you stop making payments – it can also drastically affect someone else.

Co-Borrower Vs. Co-Signer FAQs

Still curious about co-signers and co-borrowers? Look at the following frequently asked questions to learn more.

Is a co-signer the same as a co-borrower?

A co-signer is not the same as a co-borrower. A co-signer is only responsible for making loan payments in the event that the borrower can’t, and they have no ownership interest in the property. A co-borrower is equally responsible for the loan and they also have ownership interest in the property.

Does a co-borrower have to make payments?

Yes, a co-borrower is expected to make payments alongside the primary borrower. Co-borrowers usually share the title of the home as well. However, that's not always the case because the loan and title are separate.

Is it better to have a co-signer or co-borrower?

There's no hard-and-fast rule that one is better than the other. It simply depends on your situation. If you plan to live with a particular individual, a co-borrower may make the most sense, whereas if you don't plan to live in the house with the individual who helps you qualify for the home, you may prefer to get a co-signer on board.

Does a co-borrower have to have good credit?

Having a co-borrower with good credit and a favorable debt-to-income (DTI) may help strengthen your application. If your co-borrower has a low credit score you may face less favorable mortgage terms or not get approved altogether. Learn more about the credit score needed to buy a house.

The Bottom Line

If you've been bogged down by your credit score but still want to qualify for a mortgage, you may consider getting a co-borrower or co-signer to boost your qualifications.

Ready to make a move? Start an online application today with Rocket Mortgage^®.