What You Need to Know About Co-Signing a Mortgage

What Does It Mean To Co-Sign a Mortgage?

When someone co-signs your mortgage, they are essentially acting as a guarantor. The co-signer agrees to take on joint liability for the mortgage debt, without any ownership rights to the property itself.

In practical terms, it strengthens your mortgage application by adding the co-signer’s income and assets into the equation. Lenders will assess both your finances combined when calculating what you can borrow.

Having your mum or dad as a co-signer could mean getting approved for a larger mortgage. Or it might tip the scales if you were borderline based on your own finances.

Image showing definition of  co-signing a mortgage.

Who Can Co-Sign My Mortgage?

It’s most common for parents or close family members like grandparents to co-sign a mortgage for their children or grandchildren. Lenders tend to prefer this family connection rather than friends acting as guarantors.

Age can be a factor too, as some mortgages have a maximum age that the co-signer cannot exceed by the end of the term. That’s because the co-signer remains liable for the full mortgage term.

To act as your co-signer, your parent (or whoever) will typically need:

• A good credit score
• A stable and sufficient income
• Low existing debts or debt-to-income ratio
• Equity or savings to put up as security

Essentially, your co-signer needs to be in a financially robust position themselves. 

If they also have bad credit or money troubles, they could actually end up hindering rather than helping your mortgage application.

Images showing that co-signers should be in a good financial position if they co-sign for a mortgage.

How Does Co-Signing Work?

In practice, the co-signer signs the mortgage deed alongside you, the primary borrower. Their income and outgoings will be scrutinised by the lender in addition to your own.

The property and mortgage itself remain entirely in your name – the co-signer has no ownership rights. But they become jointly liable for the debt, so the mortgage payments must be made regardless of any relationship issues.

While your parent co-signing can boost your chances of mortgage approval, it doesn’t automatically make the process easier. You’ll still need to evidence the usual things like:

• A decent deposit (relative to the property value)
• Sufficient income to afford the mortgage repayments
• A good credit history
• Standard documentation like ID, payslips, bank statements etc.

Having a co-signer won’t compensate for coming up short in these areas. But it can provide a level of support that helps you meet the lender’s lending criteria overall.

Image showing co-signers provides a level of support for meeting the lender’s criteria.

Benefits of a Co-Signed Mortgage

So in what situations can having a parent co-sign your mortgage really help? Here are some of the key benefits:

Get a Mortgage With a Low Income

One of the most common reasons for needing a co-signer is having a low or irregular income which makes affordability difficult. This is particularly common for first-time buyers starting in their careers.

Even if you could theoretically afford the mortgage payments thanks to assistance from your parents, lenders still need assurances. Having your parents co-sign provides that financial backing.

Buy a Home With Adverse Credit

Having your parent act as a co-signer can help mitigate issues caused by a poor credit history, such as:

• Low credit score
• Previous missed payments
• County Court Judgments (CCJs)
• Defaults
• Bankruptcies

Their financial standing as co-signer could make up for your adverse credit, allowing you to still get approved.

Borrow More to Buy a Larger Home

With the combined income from you and your co-signer, lenders may approve a larger mortgage amount than they would based on your finances alone.

This could mean being able to afford higher property prices, perhaps even in neighbourhoods that would otherwise be off limits based on your solo borrowing power.

Improve Your Loan-to-Value Ratio

The more deposit you can put down versus the property price, the lower the loan-to-value (LTV) ratio on your mortgage application. Lower LTV mortgages tend to attract lower interest rates.

If your parents provide some of the deposit funds (or allow you to use their home as security), this could lower your LTV and save money via a cheaper mortgage deal.

Drawbacks & Risks of Co-Signed Mortgages

While co-signing can be advantageous, it isn’t a magic solution and there are some risks involved for both you and your co-signer parent(s). Be mindful of these drawbacks:

Legal Responsibility For Parent(s)

As co-signers, your parents become fully legally liable for the mortgage debt if you default. This responsibility stays in place until the mortgage is paid off in full.

If you were ever to stop making payments, the lender could chase your parent(s) for the entire outstanding balance. Their credit score could be damaged, assets may be at risk – it’s a major legal commitment they are taking on.

Relationship Strain if Things Go Wrong

Money issues and personal relationships don’t mix well. 

No matter how well-intentioned, having your parents financially tied to your mortgage is a risk to your relationship. Any missed payments or difficulties paying it off could cause stress and conflict.

Potentially Higher Interest Rates

If your situation is viewed as a higher risk by lenders, you may face higher interest rates than a standard residential mortgage deal. 

So the trade-off for getting approved with a co-signer could be paying an inflated rate.

An Exit Strategy is Needed

Most lenders will expect to see your co-signed mortgage as just a starter home scenario or short-term solution. 

You’ll likely need to demonstrate a clear exit strategy or plan to take over the mortgage independently within a certain timeframe (e.g. 3-5 years).

Image showing the pros and cons.

The Bottom Line: Find Out if It’s Right For You

As you can see, co-signed mortgages are very much situational. The pros and cons depend entirely on your specific circumstances, those of your intended co-signer, and whether it truly is the most suitable path to homeownership for you both.

The only way to know for sure is by speaking to an independent mortgage broker. Their expert guidance can help you weigh up all the factors and decide whether co-signing or an alternative option, is the right mortgage solution.

Our fee-free mortgage brokers have helped thousands of co-signers and guarantors onto the property ladder. Book a quick introduction call to get started.