Cosigner on a USDA Loan? Here's What You Need to Know

Can mom cosign my USDA loan?

Parents co-signing a loanA cosigner is a person who signs a loan agreement with the borrower. The cosigner is jointly responsible for repaying the loan. A cosigner may be beneficial for a borrower who does not have a strong credit history or who does not have enough income to qualify for a loan. Having a cosigner may also help the borrower get a lower interest rate on the loan.

One of the most often asked questions regarding USDA loans is whether the home buyer may include a relative or close friend as a co-signer or co-borrower on the mortgage application.

The simple answer is "yes".

Cosigners are individuals who will not reside in the home, but who will assume responsibility for the debt obligation are allowed to be cosigners on the promissory note.

A cosigner must demonstrate the willingness and ability to meet the debt obligations as outlined in the USDA underwriting manual, Chapter 4: Borrower eligibility and have a total debt ratio that does not exceed 41 percent to increase the applicant’s buying power.

A cosigner's debt to income should include the loan payment PLUS the applicant's escrow payment. Add the cosigner's long-term debt. Short-term expenses that can impact repayment.

The cosigner must also be willing to be on the loan until it is paid off. If the principal borrower is unable to make mortgage payments, the cosigner is responsible for the mortgage payment.

Cosigners may only be used to enhance the applicant’s purchasing power. Cosigners may not be employed to make up for an applicant’s unsatisfactory credit history

Cosigner vs. Co-Borrower

In most circumstances, a co-borrower will appear on the property's title (deed), while a co-signer will not. Being a titleholder has a unique set of privileges and duties.

Conclusion

A cosigner is a great option for people who want to buy a home but don’t have the credit score or income to qualify for a loan on their own. A cosigner can help get the loan approved and help reduce the interest rate.