“In 2022, home prices increased at an alarming rate. Leaving many wondering whether they can afford to own their own home. According to the Federal Housing Finance Agency, U.S. home prices increased by 18.05% in the third quarter of 2022. So, many people, especially younger generations, feel priced out of homeownership, a key part of the American dream.”
You may be able to afford to become a homeowner through co-ownership. If you want to become one but are unsure if you can do it alone. Here’s what you need to know about What Rights Does a Co-Borrower Have on a House?
Bit about co-borrower
A co-borrower is a person who is severally liable for a loan. This term is sometimes used with terms like co-signer and guarantor. But these concepts differ depending on the law. Co-borrowers share full repayment responsibility and interest in the property securing the loan. Co-signers and guarantors only incur liability for the loan if the original borrower defaults. And the lender initiates foreclosure proceedings. Payment.
The benefit of having co-borrowers is that they can qualify for loans that they wouldn’t be able to obtain. The co-borrower can borrow more money with their income and financial circumstances. Additionally, they have access to the lowest interest rate. The drawback is that one of the individuals who is a co-borrower default. The co-borrower must take over. If the loan is too large for one person, it could fail to pay.
Rights of co-borrowers
The co-ownership of a home is the act of buying a house with someone else, such as an ex-partner, a family member, or a friend. Titles and mortgage loans will likely be titled to all co-owners. To hold the title, the group must decide how to do so. Joint tenancy and tenancy in common are two options:
Tenancy in common
This option does not divide property shares between owners. Each person owns a percentage of the property based on how much money she invests. All areas of the property are accessible to each individual. Also, each owner decides who receives her share of the property when she dies. So not all owners will receive their share. The other co-owners must consent to the sale of an owner’s share.
In the USA, each person shares equal ownership of the home when buying a home with friends or family with this option. In the event of death, no one has the right to choose his beneficiaries. Rather, the surviving owners inherit the deceased person’s share, dividing it. A co-owner may also sell his share of the home to another individual without obtaining the approval of the other co-owners.
According to Jesse Sheldon, director of operations and broker at Gordy Marks Real Estate. Joint tenancy is a good option to avoid probate or protect your property from creditors.
Consult with a real estate attorney for the best possible course of action for you and your co-owners. You do not need to live in the house together if you own a home with your parents, relatives, or friends. The mortgage loan debt will be owed by each owner regardless of how the title to the house passes.
Examples of co-ownership
Here are some examples of how to buy a house with many owners:
Co-owning house with friends
Suppose you and two friends want to own a home, but none of you can afford one alone. You decide to buy a property together as a solution. Buying a house with a friend or several friends usually results in all of you living in the same place. The title is joint tenancy, so you all have equal ownership and signs the mortgage loan together.
Upon the death of one friend, the remaining owners split that person’s share equally. Should you decide to move out at some point, can you sell your share to your co-owners or someone else? In either case, you do not need permission to do so. Sheldon says many advantages exist in a market like Seattle. Where homeownership is difficult to meet. An average-earning group of friends can help you get a spacious home and take advantage of the great appreciation we’re seeing.
Co-owning house with parents
Suppose you want to buy a home but don’t have the down payment or credit score to qualify on your own. You can ask your parents to contribute to the down payment for a share of the property. However, only you will be able to live in the house.
If you contribute a larger percentage to the down payment than your parents. You may opt for tenancy in common. The mortgage loan is your responsibility, but you can choose to make the full payment on your own.
What is the process of co-borrowing?
The mortgage application process is the same if you apply alone or with a co-borrower. A lender will review your income, credit score, history, and any assets you may have for a down payment or reserves. There is only one difference: more than one person is applying. Clients often struggle to qualify based on their credit score and having a down payment and income to cover the monthly payment.
A person’s credit score comes from the median of Equifax and Experian. And TransUnion when they qualify as an individual. In most loans, including those backed by Freddie Mac, the FHA, and VA, the lowest median credit score of all co-borrowers counts.
If you have a co-borrower, Fannie Mae can make things a little more interesting. Fannie Mae’s case averages the borrowers’ median credit scores instead of the lowest median credit score. You could qualify for a conventional loan more. If you have a higher qualifying score for qualification purposes. A co-borrower can help with your DTI since a co-borrower with a good income. And low debt can help you qualify for a loan with a lower DTI.
What type of loan do you need?
A specialized mortgage loan is unnecessary when purchasing property with friends or family. Your creditworthiness and your plans for the property are more important to lenders than whether it will be your primary house or investment property.
So, shopping around and comparing different loan programs is important to determine. Which is best for you? Find out which options are most suitable for you and your needs by consulting with a mortgage broker or a loan officer.
The number of borrowers on loans may be limited, though. For example, Fannie Mae’s Desktop Underwriter, an automated underwriting system for conventional and government loans, only supports four borrowers. The process of manual underwriting can be complicated if you want more.
Furthermore, the interest rate on the loan will be determined by the lowest credit score on the application. Even if a co-borrower has a higher credit score. Be careful when choosing a partner for your home purchase.
Is it necessary to have a co-borrower purchase a house?
There is no need for extra borrowers on loans. Borrowers may not qualify, but any buyer can get a mortgage. This assumes that the borrower meets the credit, debt-to-income ratio, and asset requirements.
Are co-borrowers required to be married?
The National Association of Realtors reports that 18 percent of home buyers in 2017 were single women. In contrast, only 7 percent of single men purchased homes last year. So, it is not necessary to have more borrowers or a spouse. There is no requirement that borrowers be married to each other. But, VA loans are exempt from this rule. Having many borrowers on a VA loan requires that the borrowers be matched or have domestic partners. But, there is a solution for dual vets.
Is it necessary for a co-borrower to live in the house?
Typically, borrowers must occupy their primary house when purchasing a home. FHA and conventional loans allow borrowers who do not have to live in the house. Co-borrowers who do not occupy the property are called “non-occupying co-borrowers.” It is possible to add another borrower to the loan to help the primary borrower qualify for the loan. There is no need for the extra borrower to live on the property. It is still possible to purchase the home as a primary house with a lower interest rate and down payment. You cannot co-borrow with USDA or VA loans if you don’t live there.
Selecting a trustworthy co-borrower or co-signer
You and your co-borrower or co-signer will have to agree on who makes the monthly payments and how much each contributes to the monthly payments. Therefore, you should choose a person you trust who is financially responsible. You are still responsible for the loan even if your co-borrower or co-cosigner cannot make their contribution.
The co-borrower or co-signer on the other side of the fence is still responsible if the other party fails to make payments. The co-borrower, but, has an advantage in this case. Possessing the property is possible if the other party stops making payments. The situation is different if you are a co-signer. It is important to remember that co-signers aren’t on the property’s title and cannot take possession of it.
Pros and Cons of Co-Owning a Home
The advantages and disadvantages of owning a home with your partner, friends, or relatives before marriage vary depending on your situation. If you decide to follow that path, here are some things to consider:
- Owning a home can be more affordable if you share the down payment and mortgage payments.
- When you cannot do it, your parents can help you with a down payment and mortgage application.
- A home equity loan allows you to build equity faster than you would on your own.
- You can save even more by sharing utilities, maintenance, and repairs. And other expenses between all owners.
- Even if one co-owner cannot pay his share of the mortgage loan, all co-owners are equally liable for the debt.
- The lowest credit score will determine the interest rate.
- Despite not requiring consent from the other co-borrowers. Co-borrowers may encounter issues if they want to sell their share.
- In a tenancy in common, death among the co-owners can raise issues. If the deceased chooses an outside beneficiary.
Best ways to buy a home with multiple owners
Consider the process carefully if you’re considering buying a home with friends, family, or anyone else to ensure a positive experience. As a starting point, only consider this type of arrangement with someone you trust implicitly. In the early stages of the process, you should also discuss your credit scores and financial situation. Some people may need to work on improving the credit of one co-owner before applying for a mortgage loan – as doing so may leave them without equal financial responsibility. Additionally, you should hire an attorney to assist you with the following:
- Title type.
- Dividends for shares.
- The division of ongoing financial commitments.
- When one owner fails to meet his obligations.
- When a co-owner dies, how do claims pass?
- If an owner wishes to leave, what will happen?
There are always risks of a falling out, the financial position could change, or the market is tanking. Considering the life and human experiences that might throw you off is important. If this happens, here is our plan. The biggest threat is not having critical conversations and not drafting agreements that state this and that if this or that happens.”
What Rights Does a Co-Borrower Have on a House? In contrast to co-signers, a co-borrower will own a part of the purchased property. Co-signers and co-borrowers may assist you in getting loans. However, there are some differences in the risk that comes with their responsibilities. Co-signing for a loan is risk-free and without reward, meaning you might be required to repay it without any gain.
A co-signer or co-borrower is someone you need to trust if you want to secure a loan. Confirm that they feel comfortable adding their name to the loan application after sharing the responsibilities associated with each role. Communicating with this person about the loan status will ensure you are on the same page, which is essential since they have an interest in the mortgage.