How an FHA Loan Cosigner Can Boost Your Approval Odds

Can you have a cosigner on an FHA loan? Yes, FHA loans allow both cosigners and non-occupying co-borrowers to help you qualify. If you’re struggling to get approved for a mortgage due to high debt or low income, adding a cosigner to your application can help improve your chances of approval. 

A cosigner doesn’t make monthly mortgage payments, but their stable income and low debt can help you meet FHA loan requirements. It’s important to note that a cosigner cannot fix poor credit. The FHA uses the lowest credit score among all parties to qualify the loan. That means if your credit score is below FHA’s minimum, adding a cosigner won’t help.

Here’s everything you need to know about an FHA loan cosigner and whether it’s the best option for you.

Can you get an FHA loan with a cosigner?

Yes, FHA loans allow cosigners and non-occupant co-borrowers to help meet income and DTI requirements.

Cosigners sign the mortgage note but are not on the property title and do not live in the home. In short, they agree to take legal responsibility for the loan if you stop making payments on the loan, but they don’t have ownership rights.

On the other hand, non-occupant co-borrowers sign the mortgage note, are listed on the property title, and share legal ownership, but do not live in the home.

Both options can help strengthen your FHA loan application by adding another person’s income and assets to the equation, which can lower your overall debt-to-income (DTI) ratio. This can be especially helpful if you earn a modest income, have significant existing debt, or have gaps in your employment history.

This is a major difference between FHA and many conventional loans, which tend to have stricter limits on non-occupant co-borrowers and sometimes don’t allow them at all. FHA’s flexibility makes it a popular choice for first-time home buyers who need a financial boost from a family member or a friend.

Who can be a cosigner on an FHA loan?

A cosigner is someone with good credit, a stable income, and a low DTI ratio who agrees to take full responsibility for a loan if the borrower cannot make payments. According to HUD, a cosigner must meet the following FHA loan cosigner requirements to be eligible:

• Be a U.S. citizen or lawful permanent resident
• Have a valid Social Security number
• Meet FHA’s minimum credit score requirement (580+ for 3.5% down)
• Have at least two years of stable employment or income history
• Have a debt-to-income (DTI) ratio of 43% or lower
• Not have a financial interest in the transaction (cannot be the seller, real estate agent, lender, or investor)
• Provide proof of a long-term relationship with the borrower if they not an immediate family member. This could be joint financial accounts, old correspondence, or other documentation showing the relationship.

It’s worth noting that some lenders may impose stricter rules, often known as overlays. For example, some may require the cosigner to be an immediate family member, even though FHA rules allow friends or employers to cosign. Always confirm with the lender before applying.

So, who can be a cosigner on an FHA loan? The FHA allows non-occupant cosigners to be:

• A family member, including a parent, grandparent, child, spouse or domestic partner, uncle, aunt, or in-law
• A friend (with proof of relationship)
• An employer (with proof of relationship and no financial stake in the property)

Regardless of relationship, cosigners should fully understand the commitment they’re making. As a cosigner, you’re fully responsible for the loan if the borrower fails to pay. Keep in mind that late or missed payments will appear on your credit report.

When to use a cosigner (and when it won’t help)

While using a cosigner can help strengthen your application and boost the chances of you getting approved for a mortgage loan, there are situations when it makes sense to use one and also some circumstances when a cosigner won’t help.

A cosigner can help you when you have:

• High debt-to-income ratio: If a large percentage of your monthly gross income goes toward debt payments, a cosigner’s low debt levels can lower the overall DTI ratio and make approval more likely. Most lenders don't want your monthly debt payments to exceed 43% of your gross monthly income.
• Low income: If your income is low and your cosigner’s income is high, it can boost the total qualifying income on the loan application.
• Gaps in employment: FHA loans generally require at least two years of employment history. If you’ve recently returned to work or changed jobs, a cosigner’s stable work history can help balance your profile.

However, a cosigner won’t help you if you have:

• Low credit score: FHA uses the lowest credit score from all applicants. If yours is below the FHA’s minimum credit score requirement (usually 580 for 3.5% down), using a cosigner won’t change that. 
• Insufficient down payment: If you haven’t saved enough for a down payment, adding a cosigner to your FHA loan application won’t help. However, the FHA allows borrowers to use gift funds to help with down payments or closing costs.
• Recent bankruptcy or foreclosure: FHA has mandatory waiting periods, usually two years after Chapter 7 bankruptcy and three years after foreclosure, before you can qualify for a new FHA loan. A cosigner cannot shorten or bypass these timelines.

Here’s an example of a situation where a cosigner could help a borrower:

FHA cosigner vs. co-borrower: What’s the difference?

The terms “cosigner" and "co-borrower” are often used interchangeably, but each serves a different purpose and carries different risks.

A co-borrower is someone who shares equal responsibility for the loan. Their name appears on the title, meaning they have legal ownership rights. In many cases, a co-borrower lives in the property as their primary residence. Spouses are the most common example, but co-borrowers can also be other family members or even close friends who plan to share both the home and the mortgage.

A cosigner helps the borrower qualify for the loan but isn’t listed on the property’s title. Because they’re not on the title, they don’t have any ownership rights in the home. They also don’t live in the property, but they’re still legally responsible if the borrower fails to make payments.

Pros and cons of using a cosigner

Is using a cosigner on an FHA loan a good idea? It depends on your financial situation. A cosigner could mean the difference between approval and denial, but both come with risks for both parties.

Pros

Using a cosigner on an FHA loan comes with several advantages.

A cosigner can help you qualify for an FHA loan

Lenders will combine your finances with that of the cosigner during the loan qualification process, which can help you meet the FHA’s minimum requirements.

A cosigner acts as a safety net

Having a cosigner reassures lenders that there’s another financially responsible party who can step in to make payments if you can’t. This added layer of security can make lenders more comfortable approving your loan.

Getting your loan cosigned might help build credit

If you make all the payments on time, the positive payment history will appear on your credit report and that of the cosigner, potentially improving their credit scores.

Cons

Here are the potential downsides you and your cosigner should consider before committing.

Cosigning a loan puts the cosigner at financial risk

If you stop making payments on the loan, the cosigner is fully responsible for the loan. 

Cosigning can damage the cosigner’s credit score

If you make late payments, this will show on both of your credit reports. Even one missed payment can harm your cosigner’s credit score — and yours.

Cosigning might strain personal relationships

If issues like missed payments or unexpected financial struggles arise, it could ruin your relationship with the cosigner.

Can a first-time buyer use a cosigner?

Yes, the FHA allows first-time home buyers to use a cosigner. In fact, it’s common for parents to cosign for their kids.

However, you still need to meet the FHA’s minimum credit score and down payment requirements. Remember that a cosigner’s credit score won’t help you qualify if your score is below the minimum threshold.

Summary: Should you use a cosigner?

If your credit score is good, and your income and DTI ratio keep you from qualifying, a cosigner may help. But if your credit score is too low, a cosigner won’t help — consider working on improving it or applying with a co-borrower.

Be sure to check with lenders for overlays or preapproval requirements before applying for a mortgage loan. If you need help finding a lender who will approve your mortgage loan application, talk to a real estate agent who’s experienced with first-time buyers. Clever can introduce you to agents in your area who have helped buyers like you!

FAQs about cosigners on FHA loans