What is a Co-mortgagor
A co-mortgagor shares in the repayment obligation and ownership of a property.
BREAKING DOWN Co-mortgagor
A co-mortgagor is a participant in a loan who shares in the liability for full repayment of a loan. They are also a co-owner of the property following the closing of the loan. A co-mortgagor can be a relative or business partner of the primary borrower, and has the same rights and responsibilities as the other party. Generally, an individual applicant brings in a co-mortgagor in order to improve the application or allow them to apply for a larger loan. A lender may be happy to involve a co-mortgagor in the loan transaction, as the second borrower lowers default risk to the lender. The co-mortgagor also bears responsibility for repayment if the original applicant is unable to make payments. In exchange, the co-mortgagor enjoys partial ownership of the property and has limited resale rights.
Co-signer and Co-mortgagor: What Is the Difference?
A co-signer acts as a safety net for the primary owner of a property in the event that that individual is unable to make payments. Typically, a co-signer becomes involved when the primary applicant for a loan has little or questionable credit history. The co-signer does not have any ownership stake in the property after closing, and generally does not participate in normal monthly payments unless the borrower proves unable to make payments. If the borrower does stop paying, the bank will approach the co-signer for resolution of the debt. When considering the application, the lender will focus more on the credit rating of the co-signer, since that person’s ability to pay will be the ultimate impediment to default. The co-signer’s credit score is also at risk in the event that the loan falls through.
A co-mortgagor also partakes in the loan to assist an otherwise imperfectly qualified applicant obtain a mortgage. Instead of serving as a stopgap against default, the co-mortgagor is a full participant in the application process and may contribute to regular monthly payments. As equal participants in the mortgage transaction, the co-mortgagors are entitled to some legal protection as if they were one individual. For example, if one borrower declares bankruptcy, the other is protected against creditors regardless of their financial status.
The classic example of a co-signer is a parent helping an adult child purchase their first property. The parent is involved to vouch for the child, and lessen risk to the lender, but not to make payments. The most common scenario for a co-mortgagor relationship is spouses purchasing a property together. Business partners would go through a similar process. By applying together, the applicants can generally qualify for a larger loan.