Getting a mortgage is typically necessary when buying a home. However, depending on your financial history, getting approved can be difficult. To that end, you have the option to obtain a co-signer or co-applicant. While the terms sound similar – and are similar in many respects – there are also some distinguishing aspects to consider. A clear understanding of both concepts will help you decide which option is right for you.
What Is a Co-Applicant?
For a mortgage, a co-applicant is an individual who essentially tries to obtain a joint loan with someone else. A co-applicant is also sometimes referred to as a co-borrower. If you and the other applicant – whether you are the primary applicant or co-applicant – plan to collectively own the property, this automatically splits the debt responsibility between you.
For example, such an arrangement would be useful for married couples, since you and your spouse share all your assets, including real estate. It may also be a good option for two family members, like two sisters or a set of cousins who plan on living together to split expenses.
What Is a Co-Signer?
A co-signer's purpose is to assist someone who lacks good credit — or any credit. Provided that the co-signer's credit is satisfactory to the lender, the individual then acts as a safeguard. If the borrower falls behind or defaults on the mortgage, the lender can pursue the co-signer to obtain the money, and the co-signer would be legally obligated to make the mortgage payments.
How They Are Similar
One similarity between a co-applicant and a co-signer is that having either one increases the chances of getting approved for a loan. If you already qualify for a mortgage, either a co-signer or a co-applicant can raise the amount of money you obtain.
The qualification criteria are also identical. Your co-signer's or co-applicant's credit and financial history will be examined. This includes things like debts, savings and credit scores. Also, in both cases, the individual's credit can be affected.
How They Differ
One difference between a co-applicant and a co-signer is responsibility. While payment obligation is immediately split between a co-applicant and primary applicant, co-signers are only responsible for paying if the borrower defaults on the loan.
Another difference is that, when it comes to mortgages, a co-applicant automatically becomes an owner along with you and will have their name written on the title and any security instruments. With this in mind, make sure your co-applicant is someone you trust and with whom you have amicable relations.
Alex Saez is a writer who draws much of his information from his professional and academic experience. Saez holds a Bachelor of Arts in English literature from Queen's University and an advanced diploma in business administration, with a focus on human resources, from St. Lawrence College in Kingston, Ontario.