What Is a Co-Applicant?

Understanding Co-Applicants

A co-applicant is an additional applicant involved in the loan underwriting and approval process for a single loan. In some cases, a co-applicant may be considered secondary to a primary applicant.

A co-applicant differs from a co-signer or guarantor in terms of their rights associated with the loan. A co-signer may be used to help a primary applicant receive more favorable loan terms. However, they are generally not given access to the funds or associated with the collateral involved. Thus, a co-signer only serves as a secondary source of payment in support of the borrower. Meanwhile, a co-applicant shares in the transaction itself.

Applying With a Co-Applicant

There are several reasons that a borrower might choose to apply with a co-applicant. A co-applicant may be a family member or friend willing to help the borrower obtain funds that will provide for a loan consolidation or vehicle purchase. In many cases, a mortgage loan will include co-applicants who plan to purchase a home together. A commercial loan can also include co-applicants who are cooperatively involved in financing or real estate deal.

When applying with a co-applicant, a standard credit application is required for both borrowers. The underwriter will review the credit scores and credit profiles of both applicants in their approval decision. Generally, the terms of the lending deal are based on the credit information of the highest quality borrower which provides for more favorable lending terms. Borrowers with good credit can help low credit quality borrowers to obtain loan financing approval. They can also help to lower the interest rate on a loan for average credit quality borrowers. Often applying for a loan with a co-applicant can also help to increase the amount of principal that is obtained from a loan. This can help co-applicants to afford a home with a higher value.

Consider, for example, a husband and wife who choose to co-apply for a mortgage loan. Both applicants have excellent credit, and they are approved for a loan principal that is nearly twice the amount they would have obtained on their own. The co-applicants are provided with the loan principal, both are responsible for repayment, and both applicants will be named on the title when the debt on the home is paid.