Co-borrower vs. cosigner: Which one is best for your loan?

What you'll learn

— How adding a co-borrower or cosigner affects loan approval

— The differences in ownership, liability, and credit impact

— When to choose a co-borrower versus a cosigner

If factors like your credit history or debt-to-income (DTI) ratio are making mortgage approval difficult, adding a co-borrower or cosigner could increase your chances of qualifying. Taking either route affects how lenders evaluate your application and who’s responsible for the loan, though, so it’s important to understand the different implications. 

This guide will go over the difference between a co-borrower versus cosigner and explain how to choose the right approach.

What’s the difference between a co-borrower and a cosigner?

A co-borrower on a loan shares ownership of the loan and responsibility for repayment, while a cosigner agrees to take on responsibility only if the primary borrower can’t pay. Both boost your chances of mortgage approval by increasing the financial support behind your application. In either case, your lender will evaluate credit, income, and debts for everyone listed on the loan. They also have the right to hold your cosigner or co-borrower legally responsible for repayments if you default on your loan.

The key difference is that a cosigner has no legal ownership or usage rights to the home, whereas a co-borrower does. Here’s a side-by-side table breakdown to make the differences easier to understand.

Here’s the table in clean Markdown format:

...in as little as 3 minutes – no credit impact

What’s a co-borrower?

A co-borrower applies for your home loan with you. Most commonly, this applies to joint home purchases, like buying a property with a spouse, family member, or business partner. On a traditional mortgage, both the borrower and co-borrower appear on the title and share ownership and usage rights to the property. But that doesn’t mean they have to live there — co-borrowers can be occupants or non-occupants.

Applying with a co-borrower can strengthen your approval chances while sharing financial responsibilities and ownership. Your lender will review both of your incomes, debts, and creditworthiness to determine your approval and loan terms.

Pros

Some big advantages of co-borrowing include:

— Shared ownership and equity: With two names on the title, both you and your co-borrower can build equity in the home over time. This gives each of you a financial stake in the property’s value.

— Lower interest rates: A stronger overall financial profile may give you access to lower interest rates.

— Simplified loan approval: By combining incomes, you may be able to lower your total DTI ratio and qualify for a higher loan amount. To see how different scenarios could work for you, try Better’s affordability calculator. 

Cons

Possible drawbacks of having a co-applicant include:

— Shared liability for loan defaults: Both parties are liable for missed payments, and both credit scores can take a hit.

— Challenging to remove: Removing a co-borrower usually requires refinancing or selling, and the co-borrower must typically agree to these changes. In some cases, lenders may allow a release through a formal assumption or payoff, but these options depend on individual policies.

— Risk of relationship strain: Disagreements over matters such as payments and refinancing can strain close, personal relationships.

What’s a cosigner?

A cosigner is someone who steps in to support another person’s loan or lease by agreeing to take financial responsibility if things go sideways. In other words, if the main borrower misses a payment, the cosigner must cover it, and the debt shows up on their credit report just like it was their own.

Being a cosigner carries risk, but it doesn’t give them access to the money or property involved. That’s why cosigners are often trusted friends or family members willing to help someone qualify for a loan they couldn’t get on their own.

Pros

Here are some of the main benefits of having a cosigner on a loan application:

— Higher approval odds: A financially stable cosigner can help you avoid common underwriting hurdles, such as low credit scores and insufficient income.

— Better loan terms: Because your lender takes on less risk with a cosigner, you may be able to access better rates and options.

— Credit benefits: Making on-time payments can boost your cosigner’s credit as well as your own.

Cons

Let’s take a look at some of the potential drawbacks of having or being a cosigner:

— Shared credit risk: Missed loan payments can harm your cosigner’s credit and eventually even lead to collections against them.

— Strict cosigner requirements: Lenders often expect cosigners to qualify for mortgages on their own financial merit, so they need good credit history and higher income.

— No ownership or equity: Cosigners take on financial responsibility but hold no legal right to the property.

How do I choose between a co-borrower and a cosigner?

Is it better to have a co-borrower or a cosigner? Well, the answer really depends on your situation and needs. Let’s take a look at common use cases to see when each of these options may be most suitable. 

Ask someone to cosign when:

— You’re a first-time home buyer struggling to get approved on your own

— You want to own the asset yourself

— Your supporter wants limited involvement

Choose a co-borrower if:

— You’re buying a home with a spouse or partner

— You want to share ownership of the asset

— You’re getting help from a parent or relative who wants to be on the title

...in as little as 3 minutes – no credit impact

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Both co-borrowers and cosigners can help buyers qualify for a mortgage, but they serve different purposes. A co-borrower applies for your loan with you, sharing financial responsibility and ownership rights. But a cosigner agrees to repay your loan if you default without gaining usage rights.

The best choice for you really depends on your plans and goals. But you don’t have to figure it out alone. Better makes the home-buying process simpler with helpful tools to guide you every step of the way. You can also see how co-borrowers or cosigners affect your loan options and approval chances, all through Better’s platform.

Start your home-buying journey with Better today, and get approved in as little as three minutes. 

FAQ

What’s a co-borrower on a home loan?

A co-borrower on a mortgage is someone who applies for a home loan with another person. They share joint ownership and responsibility for repaying the loan.

Does a cosigner have rights to the property?

No. Unlike a co-borrower, a cosigner on a loan application does not share ownership or usage rights. 

How does being a co-borrower affect your credit?

Co-borrowing affects both borrowers’ credit reports. Every on-time or missed payment will have an impact on the credit of both parties. The full loan amount also affects both the borrower’s and the co-borrower’s DTI ratios, which can impact eligibility for new loans until they’ve paid down the mortgage.

What financial risks should I consider before adding a co-borrower or a cosigner?

As the primary borrower, you remain responsible for the loan even if you add a co-borrower or cosigner. Missing payments can hurt your credit, and you’re ultimately liable for the debt. Adding another person can also complicate ownership and repayment responsibilities, so make sure you’re comfortable with the long-term commitment and potential impact on your relationships.