When you purchase a home, you must typically sign both a promissory note with the lender and a sales contract with the seller of the property. However, if you are purchasing the home with a co-borrower, the co-borrower must typically sign the same documents that you must sign before the sale can close.
A co-borrower is an individual who applies for a loan with a primary borrower. If collateral secures the loan, the co-borrower has ownership interest in the collateral. The co-borrower and primary borrower have equal responsibility for the repayment of the loan, and the lender can attempt to collect from either party in the event of default regardless of whether it has attempted to collect from the other.
Like a co-borrower, a co-signer assumes responsibility for the repayment of the debt. However, the co-signer must only repay the debt if the primary borrower fails to do so. Furthermore, the co-signer has no ownership interest in the property, and his name won't appear on its title. Most lenders require co-signers to be blood relatives of the primary borrower, though some may accept a nonrelative co-signer who has a long-standing, stable relationship with the primary borrower.
Because an individual acting as a co-borrower has ownership interest in the property that secures the loan and liability for the loan itself, he must typically sign the sales contract and the promissory note. However, if the individual is acting as only a co-signer, he must sign only the promissory note since his name won't appear on the title to the property.
An individual who appears on the promissory note and not the title to the property is a co-signer by definition. Federal law requires lenders to provide co-signers with documentation that describes their responsibilities for loan repayment before they can sign the loan documents. In addition, many states limit the ability of a lender to collect from a co-signer without first attempting to collect from the primary borrower. For these reasons, lenders typically require co-borrowers to sign the sales contract and appear on the title to a property.
- Lawyers.com: Risks of Co-signing a Loan
- U.S. Department of Housing and Urban Development: Exception to a Borrower Having More than 1 FHA Loan (Non-Occupying Borrower and Co-borrower)
- Federal Trade Commission: Co-signing a Loan
- Federal Trade Commission. "Why Might I Need a Co-Signer in Order to Get Vehicle Financing?" Accessed Jan. 28, 2020.
- Consumer Financial Protection Bureau. "I Was Asked to Co-Sign Financing for a Car. What Am I Being Asked to Do and What Does This Mean for Me?" Accessed Jan. 28, 2020.
- Consumer Financial Protection Bureau. "Making the Move to Homeownership on Your Own or with Someone Else." Accessed Jan. 28, 2020.
- Federal Trade Commission. "Co-Signing a Loan." Accessed Jan. 28, 2020.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.