Want to lower your interest rate when there is a co-borrower?

Here is another answer to the question about lowering your interest rate when there is a co-borrower.  There are factors to consider and below is an article by my loan officer, Jeff Tung, Jr.  He best summarizes as follows:

The answer to your question can go one of two ways…either yes, it can or no it won’t. This is obvious, however understanding why is the more complicated part. Having a co-borrower on your loan can benefit you in the same proportion that it can hurt you. David mentions very important pieces to the puzzle, so-to-speak. There are some factors that will directly affect your RATE and there are some factors that will directly affect how you QUALIFY for the loan.

Credit rating is important. The FICO score which is the “numeric value” of your credit rating. Having someone on your loan that has a high FICO/credit score may help for both lowering your rate and helping to qualify. A lot of lenders give pricing adjustments to the interest rate based on your FICO score when “pricing” your loan scenario. Meaning that there is a price improvement (decrease in rate) if a borrower has a FICO score of over “X”. Conversely, if the borrower has a FICO score of less than “X” the price adjustment affects the rate negatively (increase in rate). This directly affects your rate!

Regarding qualifying; sometimes the more important issue pertaining to co-borrowers and credit. The score as explained above IS important to the loan scenario and interest rate pricing. But having a co-borrower presents another issue that must be considered.

What is the debt that is being brought to the scenario with adding the co-borrower?

The co-borrower can have a really high FICO score, but what if they have a lot of debt? Lenders will also greatly take into consideration the overall debt-to-income ratio (DTI). This is another factor that may or may not hurt your scenario.

Income (DTI) ratio is as important if not more important than FICO score lowering the rate. It can sometimes be the difference between qualifying. Consider the DTI to be the ratio of total monthly income divided by total monthly liabilities (credit debt). Lender’s require all parties included on the loan to NOT exceed a maximum debt-to-income ratio of “Y”. By bringing another person (co-borrower) on the loan, you increase the chance of raising the DTI. Again conversely, you can lower the DTI by bringing on a co-borrower who has income but little to no debt; lowering the overall debt-to-income ratio.

Loan amount will also directly affect your rate and payment. The Conforming loan amounts usually have the best rates. The more you borrow, the higher the rate is!

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