Co Borrower Rules When Buying a Home

There are so many reasons to buy a home. Reasons include building wealth through equity, potential tax deductions, avoiding rent increases, making the home your own, and buying a vacation spot. Even just pride in ownership is high on the chart. Yet with rising home prices and dwindling savings for down payment, many wonder if home ownership is possible. Each year, more and more single buyers purchase a home. Although, most purchases involve a borrower and co borrower.

What is a Co Borrower?

Often, there is confusion between co borrower and cosigner. A co-borrower is on the loan just as much as the borrower. In the case of a mortgage loan, each has equal responsibility in paying back the loan. Plus, the co-borrower has equal ownership in the home. Additionally, it does not matter who is first borrower on the loan unless there is a non occupying co borrower involved or using a VA loan. VA loans require that the borrower using their VA eligibility is the primary borrower.

A cosigner is responsible for the debt along with the borrower, yet does not have ownership in the property. All in all, it comes as no surprise that many have questions about the co borrower. Popular questions include:

• Is a co borrower required?
• Who may be the co borrower?
• Do I have to be married to a co borrower?
• Does the co borrower have to live in the home?
• Who Can Be a Borrower on a Rental & Vacation Home Purchase?

Is a Co Borrower Required to Buy a Home?

No, lenders do not require additional borrowers on a loan. Sometimes a borrower may not qualify by themselves, but any buyer who qualifies on their own may get a mortgage. Of course, this assumes that a borrower meets credit, debt to income ratio, and any asset requirements for the mortgage loan.

Do I Need to be Married to the Co Borrower?

A U.S. News article stated, “Eighteen percent of home buyers in 2017 were single women, according to the National Association of Realtors. Meanwhile, only 7 percent of single men bought a home last year.”. Obviously, this proves additional borrowers or a spouse are not necessary. Generally, borrowers are not required to be married to each other. Although, the exception to this statement is a VA loan. In order to have multiple borrowers on a VA loan, the borrowers should be married or domestic partners. Yet, there is a solution for dual Vets on the loan. Learn more about this here

Does a Co Borrower Have to Live in the Home?

On a primary residence purchase, normal guidelines require borrowers to occupy the home. However, FHA and conventional loans allow for a borrower type which does not have to occupy the home. This is called a “non occupying co borrower”. Therefore, a borrower may be added to the loan in order to help the primary borrower qualify for the mortgage. The additional borrower is not required to live in the property. In the end, the home is still able to be purchased as a primary residence which includes keeping the lower interest rate and lower down payment. Keep in mind, USDA and VA loans do not allow non occupying co-borrowers.

Buying a Rental Property or Vacation Home With Other Borrowers

When buying something other than a primary residence, it is fine to have a co borrower. It’s even possible to have several other buyers on the loan for a vacation home or rental property purchase. Additionally, none of the borrowers have to be related to each other.

Several buyers could combine to purchase a vacation home with only a 10% down payment. Furthermore, multiple buyers could combine to purchase an investment property for as little as 15% down payment. Each scenario allows for the down payment to come from any of the borrowers. Additionally, a second home purchase only requires 5% of the price come from the borrowers. The additional 5% may be a gift from an allowed source!