Whether you are buying a new car or a new home, all lenders look at your credit report and income to determine loan limits. Your ability to repay depends on how much money you earn. Lenders also want to find out whether you show a history of paying your debts on time. There are many ways to raise the amount of the total loan amount. Some newly hitched couples look to family members to co-sign or co-borrow on a loan.
Co-Borrowers vs. Co-Signers
Co-borrowers and co-signers are often used interchangeably, but there is a big difference between the two. A co-signer uses his credit history to prove to the lender that someone with a good credit history maintains responsibility for making payments on the loan. Co-signers do not get property rights on the home or vehicle. Co-borrowers use their income to secure the loan and in return get some property rights, including their name on the title.
Adding a co-borrower may raise your total loan limit if the lender takes the co-borrower's income into consideration on the loan amount. Co-borrowers are accepted on FHA loans as well as conventional. Co-borrowers add an extra layer of protection for your lender since he gets another person guaranteeing payment on the loan and is more likely to loan money to you.
Choose a co-borrower wisely. Debt-to-income ratios may affect the total amount you get on your mortgage loan. Co-borrowers may also affect your interest rate if they have less than stellar credit but higher income. Co-borrowers maintain some rights to the property, which could become an issue when selling the property.
Raising Your Loan Limits
You can increase your loan limit in other ways besides having a co-borrower. Other strategies for increasing your loan amount include increasing your income, paying down your debts and increasing your amount of down payment. Lenders are more likely to give you a higher loan limit if you can put down 20 percent of the total loan.
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