Most often, when registering a mortgage issued by the bank, the amount is not enough to purchase a home. In such situations, the borrower seeks the help of the co-borrower. Who this co-borrower is and how he can help will be described in this article.
Who is the co-borrower
A mortgage co-borrower is a person who is responsible for a mortgage loan to the lender together with the main borrower. In other words, he will have to repay the mortgage loan in case the main borrower can not do this.
Usually, the help of the co-borrower is resorted to if the bank considers the client’s income for mortgage payments insufficient. There can be two ways: to agree to cheaper housing, or another option - a mortgage for two.
Who can become a co-borrower
Depending on the conditions and requirements of the bank, there may be several people paying a loan, but not more than four to five. A mortgage co-borrower is not only a spouse, but also relatives, but also any other person. However, each bank may have different conditions, so before you get a loan, you need to clarify all the details.
According to the legislation of the Russian Federation, a legal spouse is automatically recognized as a partner in a mortgage loan. However, if the spouses do not want to be jointly responsible for the mortgage payments, or the share of the acquired residential real estate will be different, then it is necessary to conclude a prenuptial agreement.
If the co-borrower is a friend or acquaintance of the main payer, then he must know and understand that he becomes the exact same responsible person to the lender, and in case of unforeseen circumstances he will have to repay the mortgage payments with the right of further ownership of the housing.
Required documents
The set of documents that the mortgage co-borrower will have to submit are the same documents as for the main borrower, namely:
- Passport.
- Pension Insurance Certificate.
- Document proving registration at the place of actual residence.
- Identity documents of all those living together with him (minor children, spouse, parents).
- Employment history.
- Certificate of confirmation of income.
- Document on the availability of education.
- Other documents requested by the bank.
Co-borrower income
Different banks have different approaches to the income of the co-borrower. Some of them are not so important about the size of their salaries, while others are considering a candidacy for a joint mortgage loan is no easier than the main borrower. For example, a mortgage co-borrower at Sberbank must confirm its solvency, and its salary should correspond to the required percentage of paid payments. That is, practically the same requirements are imposed on him as on the borrower.
Co-borrower on a mortgage: rights and obligations
In any situation, the borrower is responsible as well as the mortgage co-borrower. Property rights can be indicated in a mortgage loan agreement, that is, they can be either equal shares or divided into certain parts independently.
The mortgage agreement must indicate to what extent solidarity will be repaid loan payments. So, for example, a mortgage co-borrower at Sberbank can pay the debt together with the borrower in equal shares. And also there is another option in which the co-borrower will repay payments only if the borrower cannot do this.
In any case, responsibility and rights are divided equally among mortgage debtors. Therefore, all financial relationships between the borrower and the partner in the mortgage must be documented, especially if they are not relatives.
Co-borrower and credit history
Banks are very attentive to the credit history of customers, that is, how they repaid loan payments in the past. For fifteen years, the credit history bureau has kept credit reports of all Russian citizens. It doesn’t matter which bank the previous loan was issued to, the main thing is that the credit history is positive. This applies to both the borrower and the co-borrower. In the event that one of them has a negative credit repayment history, the bank has the right to refuse to issue a mortgage to both.
There is another subtlety here. In the event that the borrower is insolvent for some reason and the co-borrower cannot repay the mortgage loan on their own, then the credit history of both will become negative. Thus, wanting to help, a person, along with the main debtor, can get on the list of unreliable and unscrupulous customers. And this can have a very negative impact in the future if you want to get a new loan.
Co-borrower and guarantor
Many people think that a mortgage co-borrower is the same guarantor. However, this is not so, although their functions are similar.
The surety is the guarantor of the return of funds issued by the lender, but it does not have the right of ownership to housing or real estate purchased in a mortgage. Also, in the process of applying for a cash loan, the guarantor may not show the bank a certificate of income confirmation.
Also, another difference between the co-borrower and the guarantor is that the guarantor's income is not taken into account when calculating the maximum loan size and cannot affect the borrower's income. But the income of the co-borrower, on the contrary, is attracted if the borrower does not have a sufficiently high level of wages.
As the loans are repaid, the surety is in last place, that is, the borrower pays the debt initially, then in case of insolvency the co-borrower begins to pay, and only then the surety, if the borrower and co-borrower cannot repay the loan.
Bank conditions for the co-borrower
Since the borrower and the co-borrower with a mortgage have the same rights and obligations to the bank, then he sets the same requirements for them. Thus, a citizen of the Russian Federation no younger than eighteen years old, who is both in degree of kinship with the main borrower, may not become a partner in the mortgage. One of the main conditions of the bank, guaranteeing the repayment of the issued mortgage loan, is the availability of continuous work experience of at least six months at the time of application.
According to the legislation, the spouse of the borrower is automatically recognized as a co-borrower, and you can even not apply. If the spouse does not have a high enough income level, then the bank can put forward a condition for the issuance of a mortgage loan - attracting one or two co-borrowers. Most likely, young spouses will not want to share their housing with friends or acquaintances, therefore, they can choose parents or close relatives as “assistants”.
The risks
In the first place, of course, the co-borrowers are more at risk than the mortgage borrowers. Wanting to help, many do not think about the possible consequences and possible problems. A mortgage loan is not repaid for several months, but is taken for many years. Therefore, troubles such as illness, disability and other surprises can painfully hit the co-borrower. Especially, this applies to those cases when the agreement states that all obligations completely pass to him in the situation of insolvency of the main debtor.
It also happens that parents become co-owners of young spouses, securing their own real estate on bail, and when their children unexpectedly get divorced, they are in an extremely unpleasant situation - debts and an apartment are pledged.
If friends decided to help and took on such responsibility, and after some time the borrower became insolvent and refuses to pay on the loan, then the bank will withhold credit payments from them. And it is good if in the future the borrower can give the spent money to the co-borrowers.
There is another feature when a mortgage is issued between several people. Sberbank, as well as many banks, can refuse the co-borrower when he decides to buy an apartment on credit for himself due to insufficient free funds in the total amount of income.
As you can see, there are a large number of risks for the co-borrower, and before you become an assistant in such a crucial event as buying an apartment, you should think many times so that you do not lose friends and relatives.
Credit insurance
In order not to get into a difficult situation, each party, when applying for a loan, must know its rights, including the co-borrower. The rights in obtaining a mortgage loan, as mentioned above, are very similar between loan debtors. But the main thing that the co-borrower must do is to insure himself.
As a guarantor of repayment of the loan, you should insure your legal capacity, and in case of insolvency, the insurance company will already make the required payments. Thus, the insurance policy provides timely guaranteed payments of mortgage debt in case of unforeseen circumstances.
Sometimes co-borrowers become colleagues who bought property for business. Accordingly, paying a mortgage loan together, they need to insure both real estate and their legal capacity.
An insurance contract is concluded in almost all banks, especially if the mortgage lending service. Sberbank, for example, when issuing an insurance policy, in some cases cancels commissions so that customers are most interested in the service of this bank.
Insurance is beneficial not only for co-borrowers, but also for the bank itself. It provides guaranteed payments and protects against many problems, such as debt collection, financial losses.
Making a mortgage loan together with the co-borrowers is a very serious matter, therefore, when concluding a contract, it is necessary to carefully study it and find out all disputed issues.