There are many reasons why more than two people might want to buy a house together. Beyond married or living couples, there are other scenarios, such as multi-generational homes, spaces for communal living, or situations where parents help children with housing costs become partners in investment property.
And if you are contributing to the home, it makes sense, giving you a layer of security and having ownership in your property. But how many people can take part in a mortgage? Here are some things you need to know about buying a home with multiple borrowers:
How many people can you have on a mortgage?
There are no legal restrictions on the number of people who can become co-robbers on a mortgage. A co-borrower is someone who shares legal ownership of the home and the responsibility to pay off the loan.
However, as a rule of thumb, traditional mortgages generally do not allow less than four borrowers.
This is due to computer software. Fannie Mae’s Desktop Underwriter Tool (used by many financial institutions to evaluate mortgage applications) only supports up to four borrowers. If you have more than four applicants, the lender must manually underwrite the mortgage. So, while you may be able to get a mortgage with four or more borrowers, there are fewer financing options.
Pros and cons of having multiple names on a mortgage
Professionals with multiple names on a mortgage
- Easier qualifications: By applying for a co-borrower, he or she can easily qualify for a loan if he or she has a stable income and a good credit and stable job. Also, if you and your co-borrowers or co-sponsors can combine the powers, you may be able to make a bigger down payment.
- Name of the co-borrower in the title: You can name the title by applying to a co-borrower. This is important if you plan to jointly own a home. Please note that if you want to add someone to the title without underwriting, you can submit quitclaim acts after closing.
- Shared cost: Having multiple people on your mortgage will allow you to share costs and make homeownership more affordable.
Cons to having multiple names on your mortgage
- Potential credit impact: Both co-sponsors are entirely responsible for the payment of the loan. If one borrower stops paying shares on the loan, the other borrower must continue to make payments to avoid discrediting or losing to foreclosure.
- Shared decisions: It’s difficult to agree to issues of homeownership, such as who is responsible for maintenance and repairs, and what should one do if they want to sell a home, but others aren’t.
Requirements for buying a house with a community
All co-sponsors must meet the basic eligibility requirements of the lender. This usually includes the lowest credit score and maximum debt income (DTI) ratio. Certain loan types also have other requirements for those who can and cannot become co-borrowers.
- Traditional loans: A co-borrower can become someone who qualifies for a loan, whether they live in the home with you or not.
- FHA Loan: As long as they have a major residence in the US, you may have an unoccupied co-dow borrower, but unless the co-dow borrower is part of the family, this means you need to make a 25% down payment.
- VA Loan: VA loans allow joint borrows, but unless you are the spouse of a qualified borrower, joint borrows are also best if you are eligible for a VA loan. If the co-borrower is a friend who is, for example, not eligible for a VA loan, the VA will not guarantee a portion of the loan.
- USDA Loan: USDA loans do not allow non-resident communities.
Tips for buying a house with multiple people
Before agreeing to a co-home mortgage, consult with a business or real estate attorney who can protect yourself, explain your options, and outline the risks you face.
Get legal advice
“We’re looking forward to seeing you in the process of doing things,” said Jim Finn, lawyer for Greg, Hunt, Ahearn & Embry of Cambridge, Massachusetts. “This is an LLC, a company, trust, or partnership. Once you have determined what’s best for your particular situation, your lawyer can draft a legal document.”
Form LLC
If you are joining an investment property with a few friends or family, forming an LLC will help protect members from liability in the event of a dispute or lawsuit, or if someone wants to stop paying a mortgage or sell the property.
“If that’s an investment, I suggest they do an LLC because they will give insulation from personal responsibility,” Finn says. “They will have business agreements that spell out how they split the revenue and share the costs.”
Check with the lender first
However, before forming an LLC, make sure your lender is open to offering a co-home loan to an LLC or similar entities. “Some lenders don’t want trust or LLCs to join the mortgage. They want individuals,” Finn says.
How to apply for a mortgage with multiple borrowers
Assuming that the lender and loan type allows co-sponsors, the application process is similar to that of a loan without co-sponsors. Each person must submit a loan application and undergo a credit check along with work history, income, assets and obligation documents. All parties must attend together on closing day.
How to remove a name from a mortgage
It is possible to remove a name from a mortgage, but that doesn’t mean it’s easy. Most lenders won’t be excited about deleting it. This means that one less person will pay off the loan. Generally, there are several options.
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Refinance your mortgage without a co-borrower. You need to be able to qualify for a mortgage yourself or with your remaining partners.
- Sell your home and buy new ones without a co-borrower. You need to split your revenue fairly and understand what you have left and how to buy a new home.
- If you have a loan you can expect, it may be easier to coordinate your community. This option is usually available with government-supported loans.
