Many shoppers eager to buy a home have trouble getting from A to B. Thatâ€™s often because they lack the funds for a down payment. Or they find it tricky to qualify for a loan.
Luckily, thereâ€™s an option that may ease the path to purchasing: get a co-borrower to go in on the deal with you. New research shows that more buyers are choosing this route.
Learn the facts about this approach and consider asking a parent, relative or friend to be a co-borrower. It can be a win-win situation for both parties that puts you on the fast track to owning.Click to see today's rates (Oct 22nd, 2017)
ATTOM Data Solutions defines co-borrowers as â€śmultiple, non-married borrowers listed on the mortgage or deed of trust.â€ť
The metros with the biggest share of co-borrowers were: San Jose (50.9 percent); Miami (45.2 percent); Seattle (39.1 percent); Los Angeles (31.1 percent); San Diego (29.4 percent); and Portland, Ore. (28.8 percent).
Markets with the smallest share of co-borrowers were: Memphis (10.3 percent); Mesa, Ariz. (12.5 percent); Oklahoma City (14.2 percent); Gilbert, Ariz. (14.4 percent); and Henderson, Nev. (15.1 percent).
Getting a co-borrower to partner with you on a purchase helps on two fronts.
â€śFirst, the co-borrowerâ€™s income and credit history can help you as a buyer qualify for a loan that you would not qualify for on your own,â€ť says Daren Blomquist, senior vice president for ATTOM Data Solutions.
â€śSecond, a co-borrower may also be able to assist with a down payment to help lower the monthly payments on the mortgage, making them more affordable. This is really helpful for first-time buyers in high-priced markets,â€ť he says.
An unmarried co-borrower can either live in the home as a co-owner occupant or live elsewhere as an investor non-occupant. This often means a parent, sibling, relative or friend of the owner-occupant.
â€śThey help with the down payment in exchange for a share of the equity gained in the home over time,â€ť says Blomquist. They may or may not also contribute to the monthly mortgage payment.
Parents can be ideal co-borrowers. The deal helps their children build wealth through ownership. And it can be a way to keep those childrenâ€”and possibly grandkidsâ€”close by.
â€śAn unmarried co-borrower is really no different than a married co-borrower in terms of the financial obligations,â€ť he says.
â€śBut the lender commonly views them as an investor rather than an owner-occupant. That means the co-borrower is still on the hook for the mortgage. So that responsibility should not be taken lightly.â€ť
Translation: if your mortgage is not paid and your property is foreclosed, your co-borrower will suffer the penalties of that foreclosure on their credit history and in the form of any investment loss.
A co-borrower arrangement works best if three main criteria are met, says Blomquist.
For best success, try these tips:
Ultimately, the recent increase in co-borrowers is good and bad news for the housing market.
The not-so-good news is that it proves thereâ€™s an affordability crunch.
â€śThis crunch is forcing more first-time buyers and others to get help from co-borrowers to be able to qualify for a mortgage loan,â€ť he says. â€śThis indicates that these borrowers are stretching themselves financially. And that could spell trouble if thereâ€™s any external economic shock or even a disaster like the hurricanes weâ€™ve seen in Texas and Florida.â€ť
The good news is that lending standards remain less risky for owners and lenders alike. And thatâ€™s the reason why these buyers need help from co-borrowers.
â€śCo-borrower purchases introduce additional risk to the housing market. But it is nowhere near the level of risk we saw with the stated income, no-doc type of loans during the last housing boom,â€ť Blomquist adds.
Another good sign? The median down payment in the second quarter was 7.3 percent of the median sales price. Thatâ€™s nearly a three-year high. Thatâ€™s also more than three times higher than the median 2.1 percent down payment seen in the fourth quarter of 2006, â€śwhen riskier lending was taking hold in a misguided effort to extend the housing boom,â€ť he notes.
Whether you use a co-borrower or buy a home on your own, mortgage rates today remain extremely attractive and affordable. For the best deal, compare offers from several competing lenders and choose the best rate and terms.Click to see today's rates (Oct 22nd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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