How to Add a Co-Borrower to Refinance Home

You'll need a gross monthy income that is high enough if you want to refinance.

You'll need a gross monthy income that is high enough if you want to refinance.

You want to refinance your mortgage loan to one with a lower interest rate, something that can reduce your monthly mortgage payments. Unfortunately, your finances have changed since you first took out your mortgage loan and your monthly income has dropped, something that might keep lenders from approving your refinance request. There is good news, though: By adding a co-borrower, and that person's income, you might be able to qualify for that refinance.

Debt-to-Income

When considering refinance applications, lenders look carefully at borrowers' debt-to-income ratios. In general, they want to work with borrowers whose total estimated new housing payment -- including taxes, principal and insurance -- equals no more than 28 percent of their gross monthly income. They also want borrowers' total debts -- including everything from auto loan and mortgage loan payments to minimum monthly credit card payments -- to equal no more than 36 percent of their gross monthly income.

Changing Ratios

Your debt-to-income ratio might have changed since you first took out a mortgage loan. Maybe you've lost a job and are now working at one that pays less. Or maybe your working hours have been reduced. Adding a second income stream from a co-borrower such as your spouse or someone else who lives with you can help boost your monthly income and lower your debt-to-income ratios, making you more attractive to lenders.

Co-Borrower

Both co-borrowers will have to apply for the refinance, meaning that you and your co-borrower will have to include your personal and financial information on the Uniform Residential Loan Application that lenders require you to fill out to start the refinance process. This means, too, that lenders will consider your co-borrower's income, debts and credit score. This last point is important: Most lenders will rely on the lowest three-digit credit score among co-borrowers. So even if your credit score is a high 740, your lender will base its approval and the interest rate it assigns your loan if it is approved on your co-borrower's lower score of 700.

Two Sets of Information

When applying as co-borrowers, you and your co-borrower will both have to send lenders copies of your important financial information. Some of this information, though, won't have to be duplicated. If you are married and file your income tax returns jointly, you will only have to provide one copy of your last two years of income-tax returns. However, each of you will have to provide the lender copies of your last two paycheck stubs.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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