A loan you co-signed counts for a mortgage unless the lender can document that someone else pays it. Co-signing makes you legally responsible if the other person stops paying, so the account sits on your credit report with its full monthly payment. Lenders call that a contingent liability, a debt you'd owe only if a certain event happens, and each program has a rule for taking it back out.
How each program treats co-signed debt
FHA. HUD tells the lender to include monthly payments on contingent liabilities in your debts, with an exception: when the other legally obligated party has made 12 months of timely payments, the payment can come out. The lender needs documentation that the other party has been making regular on-time payments for the previous 12 months.
Conventional. Fannie Mae lets the lender leave out a debt you're obligated on when someone else is actually repaying it. The lender needs that person's most recent 12 months of canceled checks or bank statements, and there can't be any delinquent payments in those 12 months.
USDA. USDA's handbook lets the lender exclude a co-signed debt when the other obligor has made the payments for the most recent 12 months, shown with their canceled checks, money order receipts or bank statements. A late payment in those 12 months keeps it in.
VA. VA's regulation tells lenders to document all known debts and obligations, so plan on a co-signed payment counting on a VA loan. Debts a divorce decree assigns to a former spouse generally aren't charged against the veteran.
Lenders look at whose account the money leaves. If the other person hands you cash and the payment goes out of your checking account, the record shows you paying it, and it counts.
A worked example on $5,000 a month
Sam earns $5,000 a month gross. Sam's own debts are a $240 car payment and $60 in card minimums, $300 in all. Sam also co-signed a sister's $420 car payment. The FHA prices use FHA 100% financing at a 5.75% rate on a 30-year fixed, property tax at 0.95% of the price a year and $283 a month for insurance.
| Co-signed loan counted | Co-signed loan left out | |
|---|---|---|
| Total monthly debts | $720 | $300 |
| Most house payment on FHA | $2,125 | $2,345 |
| Most house payment on Conventional | $1,780 | $2,200 |
| Highest FHA price | $264,000 | $296,000 |
On FHA, the total limit is 56.9% of $5,000, or $2,845, minus debts. With the sister's car counted, that's $2,845 minus $720, or $2,125. With it left out, $2,845 minus $300 is $2,545, but FHA's housing limit of 46.9%, or $2,345, comes first. Conventional's limit is 50% of $5,000, or $2,500, minus debts. Getting the $420 payment excluded is worth about $32,000 of FHA buying power for Sam.
How to get it left out
- Ask the person you co-signed for to pay from their own checking account, every month, on time.
- Collect 12 months of their bank statements or canceled checks showing each payment.
- Bring them with your application, so the lender can exclude the debt from the start.
Fewer than 12 months of their payments, or payments that ran through you, means the debt counts for now, and other fixes carry the load. FHA's 56.9% total limit often absorbs a co-signed payment with room to spare. Paying off a small card or loan of your own frees up payment room. The other person can refinance the car into their own name alone, which takes it off your credit report. And a co-signer on your mortgage, such as a parent with Social Security income, adds income to carry it.
Run your debts through the DTI calculator twice, with the co-signed payment and without it, to see what that payment history is worth to you. Then call AAA Capital Funding at 888-601-8344. We'll tell you exactly which statements the lender needs and how much house you qualify for either way.