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How Does Your Co-Applicant’s Finances Affect Your Chances Of Getting A Home?

Sarah Li Cain3-minute read
January 18, 2022

Maybe you’re not confident in your ability to get an approval for a home loan so you’re considering taking on a co-applicant. Ideally, this person can help you get approved for a loan and receive the best terms. However, there are both risks and rewards with having a co-applicant.

Here we’ll go over what co-applicant is, whether having one can affect your chances of getting a home and any pitfalls to watch out for.

What Is A Co-Applicant?

Also known as a co-borrower on a mortgage or loan application, a co-applicant is a person who applies for a loan with you as someone who is equally responsible. Most commonly, spouses or domestic partners are co-borrowers since they’ll want equal stake in the ownership of the property. However, anyone can be a co-borrower as long as they meet the lender’s requirements.

With a co-borrower, both parties’ credit and income are equally evaluated in order to approve the credit being applied for.

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Why Would Someone Need a Co-Applicant?

Having a co-applicant can increase your chances of getting approved for a loan at the most competitive rates. Maybe the borrower doesn’t have a high enough credit score or has other factors (like a high debt-to-income ratio) that show lenders they’re likely to default on a mortgage or another type of loan.

How Does Your Credit Score Affect Your Ability To Borrow Money?

Lenders look at a number of factors to see whether you’re deemed a risky borrower. In other words, how likely are you in the lender’s eyes to pay back your loan?

Your credit score is a number that shows lenders one facet of who you are as a borrower. Generally speaking, the higher your credit score, the less risk you are to lenders. That means you’ll have a higher chance of being approved for a loan and at competitive rates.

What Is Affected By Your Credit Score?

There are a few different factors that can affect your credit score: 

  • Payment history – This can account for up to 35% of your credit score, making it one of the most important factors. On-time payment history shows that you’re more likely to pay back new and existing loans in a timely manner.
  • Credit utilization ratio – This is expressed as a percentage that compares your revolving credit limit to how much credit you’re using. Ideally you’ll want to keep it at 30% or under to show that you’re not stretching yourself too thin.
  • Credit history  Also referred to as credit age, your score can be determined by the age of your oldest account and the average of your combined loan accounts. The older your accounts, the higher your score will be.
  • Credit mix – Lenders want to know if you can handle different types of loans, so the more types you have, the more positively your score will be affected.
  • New credit inquiries – Hard inquiries will show up on your credit report, such as when you apply for new loans. Many hard inquiries can negatively affect your credit score. It can look like you’re struggling with your finances, making it a necessity to take out more loans.

Does A Co-Applicant Need Good Credit?

Not necessarily.

When a lender looks at loan applications, it’ll take the lower of the two scores into consideration when there’s a co-applicant involved. Meaning, if you’re relying on your co-applicant’s higher credit score to help you get approved for a loan, it probably won’t happen.

However, lenders will look at other factors that can help strengthen your application. For example, your co-borrower’s income will be taken into consideration when a lender decides how much to approve you for. That means if you normally wouldn’t have qualified for a loan on your own, adding your co-applicant’s income can increase the amount you can get.

Lenders also look at both your and your co-applicant’s debt-to-income ratio. If your co-applicant’s debt-to-income (DTI) is lower than yours, it can help lower the overall DTI on a loan application. This can lead to a higher chance of approval and lower interest rates.

What Do I Need To Watch Out For?

Having a co-applicant means that the other person has the benefit of ownership of the asset you’re financing (like your home or vehicle) so you’ll want to think carefully about whether that’s what you want.

For example, a co-applicant on a mortgage essentially means both of you have equal rights of residence in the home. Or for a credit card, it means both parties can use up all available credit and are held equally responsible for the payments. So you could be stuck with the payments if your co-borrower decides not to help out.

Whatever option you choose, you’ll want to know where you stand in terms of your credit – you might not need a co-applicant. Before shopping around, check your credit score so you have an idea of what you can qualify for. You can also start the preapproval process to get a good idea of what you can afford.

Apply Online with Rocket Mortgage®

Get approved with Rocket Mortgage® and do it all online. You can get a real, customizable mortgage solution based on your unique financial situation.

Sarah Li Cain

Sarah Li Cain is a freelance personal finance, credit and real estate writer who works with Fintech startups and Fortune 500 financial services companies to educate consumers through her writing. She’s also a candidate for the Accredited Financial Counselor designation and the host of Beyond The Dollar, where she and her guests have deep and honest conversations on how money affects our well-being.