How A Co-Signer Can Help YouQualify For An FHA Mortgage.
Article By : Patrick Mansfield | U.S. Consumer Finance
Benefits of Having a Co-Signer For A Mortgage.
Naturally, having a co-signer on any type of debt, particularly when it is a mortgage co-signer, can be highly risky for both individuals involved. Still, having someone who is willing to co-sign on your behalf can make the difference between whether you get approved for an FHA loan or not.
If your co-signer has at least a 580 credit score, he or she can help you pay for an FHA loan that only requires a 3.5% down payment. However, the co-signer can still help you pay for your loan with as low as a 500 credit score, but the down payment assessed will be 10% for any score beneath 580.
Furthermore, if your co-signer is particularly liquid (i.e. has little debt) and has a solid credit history, it is possible that you could be viewed in a far more favorable light when the FHA-approved lender assesses your annual interest rate. That interest rate can mean the difference in thousands of dollars over the life of the loan.
For those looking to buy an FHA-sponsored mortgage can provide a borrower with one of the lowest rates in the industry. The Federal Housing Administration (FHA) originally began sponsoring government-insured loans to help low-income purchasers afford a home, but there are plenty of loopholes that allow most people to use these loans to finance a house purchase.
How Having a Co-Signer Can Help You Qualify for an FHA Mortgage
It is during the process when an FHA lender checks your debt-to-income ratios that having a mortgage co-signer can be very important. If, for whatever reason, your debt-to-income ratio shows up as more than 50%, this would normally make you unsuitable for any loan, including an FHA loan which is normally more lenient on qualification requirements.
However, by having someone co-sign for your loan, it is possible that you could get approved by lowering your total debt-to-income ratio when the other individual's income and outstanding debt is accounted for.
What Do I Need in Order to Obtain an FHA Mortgage Loan?
There are a couple of things that you are going to need to do in order to get approved for an FHA-approved loan:
1. Find an FHA-Approved Lender.
2. Locate the home that you would like to purchase using an FHA Mortgage.
3. Get the home appraised by an FHA Appraiser.
4. Have a credit score that is, at minimum, 500+.
5. Be prepared to pay at least 3.5% as a down payment.
Of course, the lower your credit score the higher that the interest payments you will be required to make will be. Sure, FHA loans are incredibly cheap when it comes to interest, but they still follow market mechanics.
Furthermore, you will be required to pay an upfront mortgage insurance premium which is assessed as 1.75% of the home value, and you will also be required to pay regular mortgage insurance for much of the life of the loan.
Finally, FHA approved lenders are required to check your debt-to-income ratio before making any loan. This is to ensure that you are in a financial position to pay your monthly payments without going underwater.
There are two ways that they can do this. First, they can check your total debt (i.e. mortgage, credit cards, installment loans, etc.) to income, which usually must be beneath 43%. Alternatively, they can check what your assumed housing expenses would be relative to your income.