It can be tough to reach your goals alone. If your bank account or credit card score are looking low, or debt is higher than you’d like, meeting your next financial milestone can feel out of reach.
Adding another person to your application can give you the boost you need. A co-applicant is someone who applies with you, giving underwriters an extra profile to consider as they decide whether to approve you for home financing. Read on to learn whether adding a co-applicant is the right next step for you.
What is a co-applicant?
A co-applicant is a person who’s considered along with the primary applicant in the underwriting and approval process for a loan or other form of financing. Lots of forms of financing accept co-applicants, including home loans, car loans, commercial property loans, and personal loans. Some alternatives to traditional home loans, like financing with Noah, also accept co-applicants.
Co-borrower vs. co-signer
Terms like “co-borrower,” “co-applicant,” or “co-signer” can feel like they mean the same thing, but there are a few important distinctions you should know.
Co-borrowers share equally with you on financing terms. In 2017, a report from ATTOM Data Solutions found that nearly 23% of purchase loans for a single-family home had co-borrowers. In parts of California, more than half had a co-borrower! Both people take on responsibility for making regular payments, and both have an ownership claim on the house.
When Noah works with co-applicants, we’re talking about a co-borrower arrangement. Both parties are listed on the home’s title and receive access to funds. Our underwriters give both co-applicants equal consideration.
Co-signers are acting as a guarantor. They promise to pay back the loan if you can’t. In 2017, people getting a new mortgage had an impressive median score of 758. If you’re concerned about your score, a co-applicant’s stellar credit could make a big difference in the terms you get.
If all goes well, a co-signer won’t have to do anything after signing the application documents. They don’t access the funds, and regular payments are the borrower’s responsibility. If you default on a loan, though, debt collectors can demand that your co-signer pay the debt. Even if you file for bankruptcy, your co-signer may still be on the hook to pay.
Ultimately, what you need to decide with your co-applicant is: Who will have access to the funds after approval? Who will be responsible for making any required payments on time? Being clear from the start will help you both feel more comfortable moving forward.
Who can be a co-applicant
Some lenders only let spouses and family be co-applicants. A parent might help their college student get a car loan, for example, because the student might not have a high enough credit score to qualify.
In other cases, you can ask a trusted friend or a business partner to be a co-applicant. Start by checking with your lender to see who they’ll accept. Then, consider which people in your life have strong credit and financial habits, and who would be willing to help you apply for home financing.
At Noah, anyone on the title of your home needs to be added to your funding application as a co-applicant and will add their signature to the final term sheet for financing. In other words, they have an ownership stake in the house alongside you. A spouse, parent, or someone else who has a strong connection to your home and family life already might be a good fit.
Is it better to apply for financing with a co-applicant?
Are two heads really better than one? Here’s how to tell if a co-applicant arrangement would benefit both of you.
What makes a good co-applicant?
When you’re choosing a co-applicant, you’re looking for someone lenders can trust. Typically, that means choosing someone with great credit and a healthy income. Excellent credit tells lenders this is someone who can handle debt responsibly. High income is a good sign that the co-applicant will have funds on hand, if they need them.
On a personal level, a good co-applicant is someone you can trust, and someone you can talk to openly about money. You need to be able to communicate clearly so you can make a strong financial plan together and tweak it as needed along the way.
Benefits of applying with a co-applicant
There are several major benefits for you if you have someone willing to be a co-applicant:
Increased chance of approval: The Urban Institute reports that applicants with credit scores under 700 have a 32% chance of having a mortgage application denied. Having someone else’s top-notch credit to back you up means a better chance you’ll hear, “Congratulations! You’ve been approved.”
- Lower interest rate: The more favorable your application, the better terms you might be eligible for.
- Higher principal: In other words, more money! A married couple with two incomes to draw from can afford a more valuable house than either spouse could alone. The same idea goes for non-married co-applicants, too.
- Potential credit benefits: A history of paying loans on time is a big factor in determining credit score. Stay on top of payments, and you and your co-applicant may both see a credit score increase. Keep in mind that this benefit depends on your good financial habits. If you don’t make payments on time, both of your credit scores could take a hit.
- Potential tax benefits: If you itemize your taxes, you might be able to claim tax deductions for mortgage interest payments you’ve made. Talk to a tax pro about whether itemizing or taking the standard deduction is right for you, and which tax deductions and credits you can claim.
What to expect when applying with a co-applicant
Ready for an inside look at how Noah views your application? Here’s what happens once you get started.
Standard credit application check
Underwriters look at all applicants’ credit scores and credit profiles. Your past experiences with credit play a major role in how future lenders work with you. High credit scores and profiles full of timely payments usually mean you can expect favorable terms.
How Noah works with co-applicants
When you’re making any major financial decision, it’s best if you can work with someone who will take you step-by-step through the process. That way, you’ll have clear insight to make informed choices that are best for you.
- We take the average credit score of the primary and co-applicant(s). That means you don’t need to strategize about who has the better financial profile and should be listed as “primary.” You’ll all get equal consideration from our underwriting team.
- We’ll communicate mainly with the primary applicant. It might make sense for that person to be the one who lives in the house, even if they have the lower credit score.
- While you’re working on your application, we can help you add someone to the property and give them rights to the title (that is, give them a share in rights to the property). We’ll send your combined income to our underwriter team.
- Need to take someone off the application? We can help you remove a co-applicant and update your application to review your income only.
- After you fill out the application with your co-applicant’s contact details, we’ll send them an email to complete their part of the application. Later, we’ll need both of your signatures on final funding documents. (Have questions? Reach out to us at any time.)
Co-applicants can help you leap toward your next big financial milestone, if you choose them wisely. Going in on home financing together is a significant decision that will affect both of you for years to come. The right co-applicant, and the right lender, can partner with you to build a stronger foundation for the next step in your home ownership journey.