What is a USDA Co-Signer or Co-Applicant?
A co-signer, or co-appilcant, is an individual who agrees to assume responsibility for making payments on the loan should the original lendee fail to meet their payment obligations. Co-signers are often used for people who have low or damaged credit scores. The co-signer is in place to ensure that the lending party receives all applicable payments.
Typical co-signers will have either a strong credit score or proof of income that will verify their ability to make payments should you fail to do so.
There are many situations that exist in which a co-signer may be necessary. In addition to a low score or insufficient credit history, a co-signer may be beneficial and even required if you do not have enough verifiable income to meet the loan-to-value ratio on the mortgage.
USDA Co-Signer Requirements and Obligations
- All co-signers for a USDA rural home loan must be intended occupants of the home.
- Co-signers will be held legally responsible for making payments on the loan should you fail to do so.
- A co-signer will strengthen any weaknesses in credit deficiency or lack of income.
- Co-signers must have the necessary income for payments, as determined by evaluation of other current debts.
Buying a home can be an expensive and daunting process. Qualifying for a loan on your own can be difficult, especially for first-time home buyers. A co-signer can alleviate the difficulties associated with the burden of the debt incurred through a home purchase. A co-signer can either help contribute monthly to the mortgage loan payment or can simply be a fallback option should you be unable to make your monthly payment obligations. Should you and the co-signer be unable to maintain the monthly payments on the loan, both parties will be responsible for any repayment on the loan and for defaults due on any missed payments.
While on many mortgages you can have a cosigner who is not a direct resident of the property, that is not the case with a USDA loan. To qualify, all parties responsible for payment of the loan must reside on the property as their primary residence.
Should you be unable to qualify for a loan on your own and do not have an available co-signer who will also reside on the property, there are other loan programs available where you may qualify with a non-occupying co-signer. Often, the cheapest option for such situations is a FHA loan, although there are other programs available for people in such circumstances.
Qualifying as a USDA Loan Co-Signer
The process for qualifying as a USDA loan co-signer is exactly the same as it is for the primary lendee. The lending party will examine your credit history and score, your current monthly income as verified through pay-stubs and two years of prior tax returns, and an examination of your current debt load through a debt-to-income ratio analysis.
It is not necessary for a co-signer to be able to qualify for the loan completely on their own, but the cost of the loan must be able to be paid by the combined incomes of the parties.
Usually, having a co-signer with a good or better credit score than you can improve your chances of qualifying for the loan as well as improve the possible interest rate you will receive on the loan. By having a good co-signer, you will be able to make lower monthly mortgage payments that you can afford.