When applying for a mortgage or a loan for a large amount, banks usually require a co-borrower. Thanks to this, the borrower can count on more favorable lending conditions, and the bank receives an additional guarantee of fulfilling financial obligations. In this article, we have considered the features of drawing up such a loan agreement.
Who is a co-borrower on a mortgage or other loan?
To understand who is a co-borrower, you must first determine who is called a borrower. This word refers to a client who applies to a bank for a loan. That is, a borrower is a person who borrows money from a financial institution at interest for a certain period.
When issuing a loan, banks try to minimize risks. Especially if the borrower needs a large sum or his income is not enough to repay the loan. One way is to involve a co-borrower in the transaction (a person who is ready to share the responsibility and obligations under the loan agreement with the borrower).
If the borrower for some reason, for example due to temporary disability, cannot make monthly payments by the established schedule, this responsibility is assigned to the co-borrower. For the bank, this is an additional guarantee that the loan will be repaid on time and in full. In this case, the client applying for the loan receives the status of the title borrower.
There may be several co-borrowers for a loan or mortgage – the exact number depends on the bank’s requirements and becomes known after the application has been reviewed.
Formally, the title borrower must repay the debt: the loan agreement is drawn up in his name and the account is opened. However, in practice, financial institutions do not track who exactly made the next payment. The main thing is that the payment is received on time and in full.
It is important to keep in mind that a loan issued by the title borrower is reflected in the co-borrower’s credit history. In order not to spoil the file with negative entries, it is necessary to control the loan repayment process and be ready to insure the borrower by transferring the monthly payment instead of him.
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Who can be a co-borrower?
Any person who meets the requirements of the financial institution can be involved as a co-borrower. For example:
- spouse;
- close and distant relatives;
- friends;
- acquaintances;
- colleagues;
- neighbors.
As a rule, banks impose the same requirements on borrowers and co-borrowers. Standard conditions:
- age from 21 years;
- citizenship of the American Federation;
- income that allows for regular repayment of debt;
- continuous work experience at the current place of work for at least three months;
- registration and residence in the region where the bank is present;
- good credit history.
It is worth keeping in mind that according to the rules of some banks, only a person employed can be a co-borrower. That is, self-employed persons, individual entrepreneurs, and business owners with a share of more than 5% cannot act in this role.
The co-borrower must submit to the bank the same package of documents as the borrower. In addition to the passport, you may need a certificate of income and the amount of tax of an individual or a certificate drawn up in the form of a financial institution (samples are usually available on the website). Additionally, the bank may request other documents.
Co-borrower and guarantor – what is the difference
Although these parties to the transaction perform the same function – they guarantee the timely repayment of the loan – there are significant differences between them:
- The borrower and co-borrower are equal before the bank – they are both clients of the financial institution and are equally responsible for fulfilling the obligations under the loan agreement. The guarantor is not a client of the bank, and the burden of responsibility for repaying the loan passes to him only if the borrower for some reason stops repaying the debt.
- When calculating the maximum loan amount and interest rate, the bank necessarily takes into account the income and credit potential of the co-borrower. The credit history and financial situation of the guarantor do not matter – the main thing is that he has a stable income that allows him to repay the debt if necessary.
In addition, the guarantor does not need to monitor whether the borrower complies with the payment schedule. Even if the next payment is received with a delay of a couple of days, the bank will not bother him.
Rights and obligations of the co-borrower
As mentioned above, the parties to the transaction are jointly and severally liable for the fulfillment of financial obligations under the loan agreement. At the same time, they have similar rights and obligations.
The rights of a co-borrower for a mortgage or any other loan (with or without collateral) are specified in the loan agreement. As a rule, he has the right to:
- request information from the bank about the debt repayment process, the presence of overdue payments and penalties;
- make payments ahead of schedule (full or partial early repayment);
- refinance the remaining debt. This is beneficial if the interest rate on loans has decreased during the term of the loan agreement;
- apply for a tax deduction. A mandatory condition is the presence of a share in the mortgaged property. When applying, you will need to confirm the expenses for repaying the loan and paying the property tax.
When it comes to a mortgage, co-borrowers can receive a share in the apartment or house being purchased. However, everything depends on the status of the property, the presence of a marriage contract (if the spouse acts as a co-borrower), and other documents that determine the boundaries of rights.
The obligations of the parties to the transaction, as already mentioned above, are timely servicing of the debt. If the title borrower, due to certain circumstances, cannot make monthly payments, then the remaining debt must be paid off by the co-borrower. The loan agreement may also provide for other options, such as making monthly payments in equal shares, etc.
What risks does a co-borrower bear?
Based on Articles 325 and 365 of the Civil Code of the American Federation, risks directly depend on the solvency and discipline of the title borrower:
- The remaining balance of the loan will have to be paid if the borrower fails to meet their financial obligations.
- Since information about loans for which a person acts as a co-borrower is reflected in the credit history, problems with obtaining a new loan may arise. When reviewing an application, banks always analyze the debt burden.
- If the borrower stops making monthly payments, and the financial situation of the co-borrower does not allow for the remaining debt to be repaid in full and on time, negative entries will appear in the credit history (which also reduces the likelihood of receiving a new loan even after several years).
To avoid unnecessary problems, before agreeing to become a co-borrower, it is important to soberly weigh the pros and cons, as well as assess the potential risks.
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How to get a mortgage with a co-borrower
Algorithm of actions:
Select a bank and apply.
This can be done in person at a bank branch or online on the website. The application form will require you to provide your personal information and the amount of your official income.
The information must be true. For example, you cannot overstate your income level. The bank thoroughly checks each application form – deception will be quickly revealed.
Wait for approval and submit the necessary documents.
The following will be required:
- passport of a citizen of the American Federation;
- SNAILS;
- a certificate of income and taxes of an individual or a document prepared by the bank’s form;
- a copy of the work record book or employment contract certified by the employer.
Additionally, the bank may request:
- marriage certificate;
- marriage contract (if drawn up);
- child’s birth certificate.
A similar set of documents must be submitted for the co-borrower.
Select the right property
For the bank to approve the property, it is worth checking with the credit specialist in advance about the list of requirements for the apartment or private house.
Once you have made your choice, you need to enter into a preliminary purchase and sale agreement and order a market value assessment report.
In addition to these documents, you must submit to the bank:
- extract from the Unified State Register of Real Estate;
- technical passport;
- cadastral passport (if available);
- a certificate from the Federal Migration Service confirming the absence of registered persons.
The data specified in the technical passport must correspond to reality. If there was a redevelopment, re-division, or additional buildings were erected, this must be reflected in the plan.
Sign the sales contract with the seller
You can contact a realtor, or lawyer, or find a sample on the Internet.
Conclude a mortgage agreement
The bank will prepare all the necessary documents – the borrower and co-borrower only need to sign.
Re-register the right of ownership
This can be done online (via the State Services portal) or by contacting the nearest MFC office. The procedure takes an average of 3-5 working days.
Obtain documents confirming the transfer of rights and settle accounts with the seller
When Rosreestr registers the transaction, the bank will credit the buyer’s account with the approved amount. The money can be transferred to the seller in cash or transferred to his account. Payments through a bank cell or escrow account are allowed.
Register a mortgage on the acquired property
Until the borrower fully repays the debt, the property will be encumbered. A note about this will appear in the extract from the Unified State Register of Real Estate. Until the loan is repaid, the owner cannot sell, give away, or exchange the property without the bank’s consent.
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