Can You Have A Cosigner On A USDA Loan? A Comprehensive Guide

by AtlasWire
16 March 2025

USDA loans have become one of the most popular choices for homebuyers seeking affordable financing options. However, many potential borrowers wonder if they can have a cosigner on a USDA loan. Understanding the role of cosigners in this type of loan is crucial for those who may need additional financial support. In this article, we’ll explore everything you need to know about cosigners and USDA loans.

Buying a home is one of the most significant financial decisions you’ll ever make. For many, securing a USDA loan is a pathway to homeownership without the burden of a down payment. However, not everyone qualifies easily due to credit or income limitations. This is where the concept of having a cosigner comes into play.

In this guide, we’ll break down the specifics of USDA loans, the rules surrounding cosigners, and how they can impact your application. Whether you’re a first-time homebuyer or a seasoned borrower, this article will provide you with actionable insights to make informed decisions.

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Understanding USDA Loans

USDA loans, officially known as USDA Rural Development Guaranteed Housing Loans, are designed to help low- to moderate-income families purchase homes in eligible rural areas. These loans are backed by the United States Department of Agriculture and offer several benefits, including zero down payment requirements and competitive interest rates.

One of the key features of USDA loans is their accessibility for borrowers with less-than-perfect credit scores. However, the qualification process involves strict criteria to ensure borrowers can manage the loan responsibly.

Eligibility Criteria for USDA Loans

Income Limits: Borrowers must fall within the income limits set for their area.
Geographic Location: The property must be located in a USDA-eligible rural area.
Credit Score: While USDA loans are flexible, a minimum credit score of 640 is often required by lenders for automated underwriting.

These criteria are designed to ensure that the loan program supports those who truly need it, while also maintaining the integrity of the program.

What Does a Cosigner Do?

A cosigner is an individual who agrees to take joint responsibility for repaying a loan if the primary borrower fails to meet their obligations. By adding a cosigner, lenders may feel more confident about approving loans for borrowers with weaker credit profiles or insufficient income.

Roles and Responsibilities of a Cosigner

Shared Liability: The cosigner is legally obligated to repay the loan if the borrower defaults.
Credit Impact: The loan appears on the cosigner’s credit report, which can affect their credit score.
Approval Boost: A cosigner with strong financials can improve the chances of loan approval for the primary borrower.

While having a cosigner can be beneficial, it’s important to carefully consider the implications for both parties involved.

Can You Have a Cosigner on a USDA Loan?

The short answer is no—cosigners are generally not allowed on USDA loans. According to USDA guidelines, the primary borrower must demonstrate the ability to repay the loan independently. This policy ensures that the borrower is fully committed to homeownership and capable of managing the financial responsibilities.

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However, there are exceptions. In some cases, a non-occupying co-borrower may be permitted, provided they meet specific requirements. These co-borrowers are typically family members who contribute financially to the household.

Reasons Why USDA Loans Don’t Allow Cosigners

Ownership Commitment: The USDA wants to ensure that the borrower is genuinely committed to owning and maintaining the property.
Financial Responsibility: By disallowing cosigners, the program encourages borrowers to develop strong financial habits.
Program Integrity: Restricting cosigners helps maintain the sustainability of the USDA loan program.

While this rule may seem limiting, it aligns with the USDA’s mission to promote responsible homeownership.

Alternatives to Having a Cosigner

Although cosigners aren’t allowed, there are alternative strategies borrowers can use to improve their chances of qualifying for a USDA loan.

1. Improve Your Credit Score

Raising your credit score can significantly enhance your eligibility for a USDA loan. Here are some tips:

Pay bills on time to establish a positive payment history.
Reduce outstanding debt to lower your debt-to-income ratio.
Monitor your credit report for errors and dispute any inaccuracies.

2. Increase Your Income

Boosting your income can make you a more attractive candidate for lenders. Consider:

Taking on a part-time job or freelancing opportunities.
Negotiating a raise or promotion at your current workplace.
Exploring passive income streams to supplement your earnings.

3. Save for Closing Costs

While USDA loans don’t require a down payment, saving for closing costs can demonstrate financial responsibility. Aim to set aside 3-5% of the home’s purchase price to cover these expenses.

Understanding Non-Occupying Co-Borrowers

In certain situations, USDA loans permit non-occupying co-borrowers. These individuals are similar to cosigners but play a more active role in the loan process. Unlike traditional cosigners, non-occupying co-borrowers must:

Be related to the primary borrower by blood, marriage, or law.
Provide financial support to the household.
Meet the same credit and income requirements as the primary borrower.

Non-occupying co-borrowers can be an effective solution for borrowers who lack sufficient income or credit strength on their own.

Key Benefits of USDA Loans

Despite the restrictions on cosigners, USDA loans offer numerous advantages that make them an attractive option for homebuyers:

1. No Down Payment Requirement

One of the standout features of USDA loans is the ability to purchase a home without a down payment. This makes homeownership more accessible for low- to moderate-income families.

2. Competitive Interest Rates

USDA loans typically come with lower interest rates compared to conventional loans, reducing the overall cost of borrowing.

3. Flexible Credit Standards

The USDA loan program is more forgiving of credit imperfections, allowing borrowers with less-than-perfect credit scores to qualify.

Challenges of USDA Loans

While USDA loans offer many benefits, there are some challenges to consider:

1. Geographic Restrictions

USDA loans are only available in designated rural areas. Borrowers must ensure their desired property falls within these boundaries.

2. Property Eligibility

The property being purchased must meet specific USDA guidelines, including size and condition requirements.

3. Mortgage Insurance

USDA loans require borrowers to pay both upfront and annual mortgage insurance premiums, which can add to the overall cost of the loan.

How to Apply for a USDA Loan

Applying for a USDA loan involves several steps:

Step 1: Determine Eligibility

Use the USDA’s eligibility map to verify if your desired location qualifies for the program. Additionally, ensure your income falls within the specified limits.

Step 2: Gather Documentation

Prepare the necessary documents, including proof of income, tax returns, and credit reports, to streamline the application process.

Step 3: Find an Approved Lender

Work with a lender who specializes in USDA loans to guide you through the application and underwriting process.

Conclusion

While cosigners are not allowed on USDA loans, there are still ways to improve your chances of approval. By focusing on strengthening your credit, increasing your income, and exploring alternative options like non-occupying co-borrowers, you can achieve your homeownership goals.

We encourage you to share this article with others who may benefit from it. If you have any questions or insights about USDA loans, feel free to leave a comment below. And don’t forget to explore our other resources for more information on homebuying and financing options.