Routing # 256078446
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Pros and Cons of Buying a Home with a Friend or Partner
What you'll learn: The ins and outs of buying a home with a friend or partner
EXPECTED READ TIME: 6 MINUTES
February 4, 2022
With rents skyrocketing and remote work becoming the norm, first-time homebuyers continue to enter the real estate market. In recent years, a trend has been growing for those unmarried borrowers to buy a home with a partner or friend. Let us dig in and examine the pros and cons.
Today’s homebuyers
According to the 2021 NAR Home Buyers and Seller’s Generational Trends, in 2020, first-time homebuyers composed 31% of home purchases. 62% of 2020 purchases were by married couples, and 38% were unmarried. Sales have remained constant from 2019 despite the pandemic. And with home prices going through the roof, it is not surprising multiple incomes are needed to qualify, especially since many millennials have substantial student loans.
Co-borrower vs. co-signer—mortgage
If you can not qualify for a loan on your own either because of income or credit, consider getting someone to co-sign or be a co-borrower. It is not uncommon for a parent to co-sign for a vehicle, student loan, and sometimes a home. Let us go over the difference between a co-borrower vs. a co-signer.
Co-signing is a big decision that should not be taken lightly. It affects the co-signer’s debt-to-income ratio and can affect their credit if payments are not made on time. Consider the co-signer the backup person if the primary borrower does not pay.
What is a co-borrower on a mortgage? A co-borrower takes on the debt with the other borrower. Both are equally responsible for the loan, and they work together to pay it off.
So when two or more (sometimes as many as four) individuals purchase real estate together, they are co-borrowers.
Plan ahead for the what ifs
Although it may be hard to consider, things change, and the future is not always crystal clear. Just like buying a home with a spouse, there is always the possibility there could be a split where friends or partners want to go their separate ways. It is best to plan an exit strategy and work out the details before deciding to buy a home with someone other than your spouse.
Also, do your research. See what top financial advisors like Dave Ramsey have to say. He strongly advises against purchasing a home with someone other than your spouse.
Some things to think about before applying for a mortgage with a friend or partner may include:
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How do you want to hold the title? Your attorney or title company can help with this.
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What percentage ownership does each person have?
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Create a buyout agreement.
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What portion of the mortgage payment does each person pay?
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What will you do if one of the co-borrowers wants out?
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What happens if one is transferred out of town for their job?
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Should you set up an emergency account for mortgage payments? If so, how much should each person contribute?
Your circumstances will be different but think about all the what ifs before applying.
The advantages of buying a home with a friend or partner
Aside from figuring out the ownership issues and legalities, being a homeowner versus a renter has so many advantages. And buying a home with someone you trust makes the experience even better.
Homeownership offers a future of stability. No more landlords or risk of rising rents. Plus, you can create the environment you have always wanted.
Investigate your mortgage options
Every mortgage product has its particular guidelines regarding co-borrowers. Your loan officer can go over the options of each. They will let you know the price range you can consider and how much you will need to have for a down payment and closing costs. From there you can decide who pays how much.
Renter versus homeowner
Renting or leasing a home is relatively easy. You are either on a month-to-month, 6-month, or 1-year lease. When the contract is up, you can move.
But when you are a homeowner, you do not have that luxury. You either have to rent out the property, refinance it with the remaining borrower, or sell it and pay the home loan off.
Can a co-borrower be removed from a mortgage loan? Although there may be ways to remove a co-borrower, the easiest is to refinance.
Buying a home is exciting, but it is a big commitment. If it is with a friend or partner, by considering all possible future eventualities and getting agreements in writing, you can protect yourself, the other party, and your relationship.
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Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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