Dec 21 2021

Boosting Borrowing Power with a Co-Borrower

Looking to beef up your borrowing power? Barring a lottery win or a sudden inheritance from a wealthy great aunt, a joint loan could be your best bet for securing a loan with a higher dollar amount and a low interest rate.

Looking to beef up your borrowing power? Barring a lottery win or a sudden inheritance from a wealthy great aunt, a joint loan could be your best bet for securing a loan with a higher dollar amount and a low interest rate. Here’s how.  

What does it mean to be a co-borrower? 

Also referred to as a co-applicant, a co-borrower is a person who shares identical responsibility with a fellow co-borrower. Each borrower seeking a joint loan has their credit looked at in the same way, evaluated by the same metrics a lender would use for any individual borrower. Since lenders are looking at two incomes and two credit reports rather than just one, the chances of getting that loan with the best possible terms are significantly higher. Often, the person with the better financial profile will be determinative in the loan’s terms. 

If approved, the multiple borrowers have joint ownership of the loan, and the responsibility for the loan’s balance lies with them equally. Co-borrowers get to reap the benefits of an often more-sizable loan, while at the same time sharing identical liability for its repayment. Specifically, with co-borrowing on mortgages, each of the co-borrowers will have their names on the title of the property. It’s common for first-time homebuyers without long-established credit histories to be co-borrowers. 

Are co-borrowers and co-signers the same thing?  

No. Co-borrowers and co-signers are not identical. There is a similarity in that a lender will evaluate the income and the credit score of a co-signer in determining whether to approve the loan. But unlike a co-borrower, a co-signer isn’t usually the one who gets the benefit of the loan. In most cases, a co-signer is needed to help out a loan applicant who otherwise might not be able to get the loan on their own. And while a co-borrower immediately bears responsibility for payments on a joint loan, a co-signer only has to step in with payments if the principal borrower fails to make them.  

Who can pair up for a joint loan? 

When most people think of a joint loan, they picture two spouses joining their financial forces to get a mortgage for a home. And that pairing and scenario are common but by no means the only kinds of folks who can partner up on a loan. A business associate, a close friend, a family member, or any significant other with sound financials can be party to a joint loan. While in practice lenders may prefer related co-borrowers, lenders should treat married and unmarried co-applicants equally. 

Do lenders like joint loans? 

Yes. It’s easy to see why a lender would like to make a loan to co-borrowers: having two incomes responsible for repayment means a lower risk of missed payments or default. Joint loans not only boost the power of the borrowers with higher loan amounts at the best possible interest rates, the power of the lender to have that loan paid back also increases. Should one of the co-borrowers fall behind in payments, the lender has the right to require full repayment from both co-borrowers. And this failure to pay back the loan will show up on the credit reports of both co-borrowers — so choose your loan partner wisely! 

When is and isn’t co-borrowing a good idea? 

While almost any two people can be co-applicants, by far the most common pairings are two spouses looking to co-borrow for a mortgage and two business partners engaged in a joint business venture. In these cases, each co-borrower has a deeply vested interest in the reason for the loan, each enjoying the benefits equally, and so co-borrowing makes the most sense in these cases. 

But co-borrowing isn’t always the best route. And this is especially the case if the two co-applicants aren’t in similar financial situations. If, for example, one of the co-borrowers has a significantly lower credit score, that could weigh heavily on the lender’s evaluation and could mean that the loan will have a higher interest rate. An individual application might yield better results. In other cases, where one borrower will get considerably more benefit from the loan, a co-signer makes more sense.  

What are some of the pros and cons of co-borrowing?  

On the plus side, two borrowers with strong credit scores stand a good chance of getting the best possible interest rate. And often with a higher loan amount than either person would be able to get on their own. Overall, a loan application with co-borrowers has a greater chance of getting approved, and the shared liability for that loan is something usually both parties are thankful for. 

But as with any joint endeavor, the deal hinges on the notion that each co-borrower can meet their financial responsibilities. If one of the co-borrowers is on shakier financial ground than the other, that could weigh heavily on their fellow co-borrower. This could not only inflict damage on credit reports but also put considerable stress on personal relationships. Made substantially worse if, heaven forbid, there’s any loss of assets over one person’s failure to meet the loan’s requirements. 

Can one co-borrower exit a mortgage loan? 

Possible but not probable. While not common or simple, the terms of a loan can be altered to allow one of the co-borrowers to come off of a mortgage. This is most often the case if one of the co-borrowers is deceased, or that the loan has been fully paid. However, as lenders increase their risk in changing from two people bearing responsibility for a loan to just one, they are often reluctant to free a co-borrower from the responsibility they signed up for. 

That said, it is possible. Some lenders allow this change with a fee and re-qualification of the remaining borrower to make sure they’re able to take on the full responsibility of the loan. Refinancing the mortgage might also present the opportunity to change the terms of the loan from dual borrowers to single-borrower status.  

Whether it’s a close personal relationship or a financial associate, the decision to become co-applicants comes down to trust. If you have full confidence in your partner, co-borrowing may be the best way to turbo-charge your borrowing power. 

Want to learn more? Call with any questions or for a quote for today’s mortgage rates.

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.


What is your financial situation?

Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?


Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?

In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.


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Written by Alicia Christopher

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