Who is a Primary Borrower?
In many instances, your daughter or son, friend or spouse, may face difficulty obtaining a home loan. This can be for many reasons. For example, they may have had some credit troubles in the past or lack sufficient credit history. In these cases, they might approach you and request that you cosign their mortgage loan application. This guarantees the lender that you will pay off the loan in case the primary borrower is not able to do so.
Primary Borrower and Joint Mortgage
Let’s understand what a primary is. When two individuals open a mortgage together, then one of them becomes the primary borrower, while the other is called the secondary borrower. Although both applicants will share equal debt obligations on a joint mortgage, keep in mind that the primary borrower is usually the individual whose credit score is used on the loan application. In some cases, when two people, like spouses, buy a home together, the lender can call the higher income earner the primary borrower.
So, if you are buying a house with somebody who you don’t have a permanent financial relationship with, such as your spouse or a business associate, it is important to put into writing all the specifics of who will make how much of the payment. It is worth noting that joint mortgages are ideal for situations in which the higher income earner has a higher credit score and, hence, becomes the primary borrower.
Mortgage Loans and Co-Signers
Note that borrowers who have poor credit and can’t get a mortgage may ask their friends or family members who have good credit to open a mortgage with them as a co-signer. It is worth noting that in these cases, the individual opening the mortgage lists himself as the primary borrower and owns the home. The co-signer becomes the secondary borrower. Also, the primary borrower may use the credit score of the co-signer to avail a better interest rate. Keep in mind that co-signers do not have an ownership interest in the property in these situations. Also, they don’t appear on the home deed.
Benefits of Joint Mortgages
One of the main reasons people look for a joint mortgage is to increase their potential limit on the loan. In most cases, limits are based mainly on the applicant’s income, and the interest rate is often based on the applicant’s credit score. As a result, by combining two sources of income, you can buy a more expensive home with a much bigger loan. It goes without saying that couples and families choose this route in order to get into a nicer or more expensive home earlier. Using both income sources on the application form makes sense financially as both people will pay for the mortgage in most situations.
Joint Mortgage: Consequences
Note that like any major commitment, financial or relational, it is important for each party to consider the consequences of the commitment ending. This is because with joint mortgages, even after a breakup or divorce, both the primary borrower and secondary borrower are held responsible for the repayment of the loan.