What's the Difference Between a Co-Borrower and a Co-Signer?

When you purchase a home, you’ll have a lot of new terms thrown at you. You may get confused by different terms that mean the same thing—or you may think that two terms mean the same thing when they don’t.

Two terms that you may think are the same—co-borrower and co-signer—are actually quite different and it’s important to know what those differences are.

Here's what each one means and which may be right for your situation:

What is a co-borrower? Also known as a co-applicant, a co-borrower is basically a co-owner, as both borrowers (or more than two) are part of the application process and will be listed on the title of the home. A co-borrower also shares responsibility for the debt. In many cases, there will be a primary borrower who has the highest credit score and income, but a co-borrower’s credit score and income will also be taken into consideration.

What is a co-signer? A co-signer helps secure a loan for another person, but legally they have no claim to the property or ownership interest and their name is not listed on the title. However, a co-signer can still be held financially responsible for the mortgage if the primary borrower fails to make payments on the loan. A co-signer will usually have the higher credit score and income than the primary borrower, who may not be able to secure a loan by themselves.

When should I have a co-borrower? The most common co-borrowing situation is when two people—often spouses—buy a home together, as both will be sharing responsibility for the debt and will be part owners of the property. For a home that requires a larger than usual loan, adding a co-borrower may make sense for a couple of reasons. Not only will adding a co-borrower help the primary borrower reach a minimum income requirement, but it also may help lower the debt-to-income ratio.

When should I have a co-signer? Having a co-signer may be right decision if the primary borrower needs help securing their loan, but does not want or need another person with an ownership interest. It’s quite common that a parent will be a co-signer for their son or daughter, especially on a mortgage for their first home. In general, a co-signer is a good option if the co-signer has better credit and more income than the primary borrower.

In the end, a co-borrower or co-signer can improve your chances of getting a mortgage or getting a better mortgage. However, just make sure you—and your potential co-borrower or co-signer—completely understand what each of the two terms mean before you start the loan process.

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For more than 25 years, Omega Financial has been serving mortgage clients in Massachusetts. Our brokers have approximately 50 years in the mortgage business. You always will receive fast, courteous, and accurate information. Omega Financial, Inc. is a company duly licensed to operate in Massachusetts as a Mortgage Brokerage. We are located in the Town of Norwood, Massachusetts where we have been operating as Omega Financial Incorporated since 1988.

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