Can two people buy a house together?
It’s pretty common for two people to buy a home together. And your co–buyer doesn’t have to be your spouse; you can buy with a friend, family member, or even a business partner.
If you buy a home with someone else, you’ll both be on the hook for mortgage payments. You’ll also share in the equity gains and other perks that come with homeownership.
Plus, it can be a lot easier to afford a home when you split the cost with another buyer. Here’s how it works.
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Who can buy a house together?
The most common type of co–ownership is when a married couple buys a home together. But other types of co–buyers are also allowed by mortgage lenders. These include:
- Non–married couples
- Investor partners who want to rent out or flip a home
“Many times, adult siblings will look to purchase a home that will better fit their needs of caring for an elderly parent. In my area, it’s also common for multiple generations of a family to purchase a single–family home due to the convenience of what that home can offer,” says Jason Gelios, a Realtor in Southeast Michigan.
“I’ve also had friends and dating couples look to purchase a home together because they did not like what an apartment was offering them,” he adds.
Eric Chebil is founder and CEO of Cher, a real estate company that promotes shared homeownership. And he says co–ownership is more popular today than many would–be buyers believe.
“For example, if you have a friend who has been saving up for their first home but they don’t want the responsibility of being the sole owner of the house, you could purchase it with them as joint owners,” he says.
How two people can buy a house
The concept of buying a home with someone else is relatively simple to understand. Co–buying essentially means you are a co–borrower on the mortgage loan.
In terms of the home buying process, very little changes. You will both apply for the loan together and each of you will go through the same financial checks a single or married home buyer would.
There are four key things to keep in mind when buying a home with someone else:
- Each co–borrower is a primary applicant on the loan application
- Both parties sign the deed to the home and are listed on the title
- Both people are legally responsible for mortgage payments
- Each co–borrower shares in the property’s equity that appreciates over time.
“When you have two co–borrowers, both are [usually] listed on the mortgage loan as joint tenants or occupants. This means that both parties intend to live in the home as their primary residence and have equal ownership rights to the property. It also obligates both parties to pay the mortgage back,” says Gelios.
“It’s important to know that each co–borrower will have an equal percentage of interest in the property and make any decisions relating to its use without necessarily having to consult with the other owner,” adds Chebil.
“They’ll also be responsible for paying their proportional share of expenses associated with maintaining and repairing the home as well as property taxes and homeowners insurance associated with the property,” he continues.
Benefits of buying a house with two people
One advantage of purchasing a home with another borrower is that it may lower your mortgage rate and increase your home buying budget. It can also be easier to qualify for a loan if you’re on the borderline of being eligible.
“For loan qualification purposes, your two incomes will simply be combined to determine how much you can borrow, although your collective existing debts will be considered, too,” notes Jon Meyer, The Mortgage Reports loan expert and licensed MLO.
Martin Orefice, founder of Rent To Own Labs, agrees.
“The big financial plus of getting a co–borrower is that your combined income is considered when applying for a mortgage if you so choose, meaning that you’ll be more likely to be approved for a higher loan amount,” he says.
What’s more, together you can probably make a larger down payment than you would be able to if you purchased alone. You’ll also be sharing in the costs of ownership, including maintenance, repairs, and home improvements.
Drawbacks of buying a house with two people
Keep in mind that buying a home with another person isn’t a cure–all if you have financial issues.
If one borrower has either a lower credit score or larger debts that could affect qualification, you might want to exclude that borrower’s income if the other borrower can qualify on their own. Otherwise, you may be quoted a higher interest rate or, worse, be denied financing entirely.
The biggest risk of having a co–borrower, though, is that one party may not be able to fulfill their financial responsibility.
If one co–owner loses their job and can’t afford to contribute to the monthly housing expenses, the other owner will have to cover the shortfall to ensure that all bills are paid.
Another downside to co–ownership? It can be difficult to agree on certain matters, such as who is responsible for upkeep and when, and what to do if one party wants to sell the home but the other does not.
“The best advice for anyone who thinks seriously about this idea is to speak with a skilled real estate attorney in the state where the real property exists,” recommends Keith Baker, real estate faculty at North Lake Campus of Dallas College.
“Most attorneys will suggest that you enter into a cohabitation agreement and a separate property agreement,” Baker says. “The former will usually define the disposal of the home in the event of a breakup or death of one party and also describe each person’s financial obligation to the home.
“The latter should list in detail any appliances, furniture, and other personal property articles brought into the joint household, and those amassed during your period of living together, and indicate how this property will be apportioned and handled if one or both parties decide to move out.”
Co–borrowers versus co–signers
A co–borrower doesn’t always have to live in the home with you. It’s also possible to have a ‘nonoccupant co–borrower,’ sometimes referred to as a ‘co–signer.’
“A co–signer is when a secondary applicant agrees to repay the loan if the primary applicant defaults on the mortgage. The cosigner isn’t entitled to occupy the home and is not listed on the title or deed, but helps the borrower obtain the mortgage,” says Gelios.
In essence, a cosigner functions as a “guarantor” who guarantees that the debt will be repaid. This person is responsible for repaying the debt if the owner/primary borrower is not able to do so.
A good example of a cosigner is a parent who cosigns a mortgage loan for their adult child who might otherwise have not been able to qualify for the financing.
It’s important to note that, although a nonoccupant co–signer doesn’t live in the home with you, they’re still considered a ‘borrower’ on the mortgage loan. That means they have to go through the same application process and financial checks. And they’re equally responsible for repaying the mortgage loan.
What to look for with a co–borrower
It’s smart to choose a co–borrower carefully, for many of the reasons previously mentioned. Consider the following before entering into this agreement:
- One person’s great credit won’t make up for the other person’s bad credit. So make sure both of you have good credit scores and have checked your credit reports carefully for errors and problems that need to be resolved before applying for a loan
- Both co–borrowers’ debts count against the debt–to–income (DTI) ratio. Lenders prefer a DTI ratio that’s within an acceptable range or below a particular threshold, often a DTI of 43 percent or lower for conventional loans or FHA loans, and 41 percent for USDA and VA loans. If your co–borrower has extensive debts, this could jeopradie your joint mortgage application
- Each party is on the hook for repaying the mortgage loan, regardless of what happens in the relationship. “When multiple non–married buyers are considering making a joint purchase such as a house, they should consider their relationship and how they will responsibly manage the home and set expectations upfront,” Gelios advises. “It needs to be clear who will take care of what when it comes to owning a home together”
- One of the co–borrowers does not have to live in the home as his or her primary residence. This person is called a non–occupant co–borrower
- Enlist the aid of a trusted and knowledgeable real estate attorney. This expert can draft up a side agreement that indicates who is responsible and for what
“Co–ownership can be a great way for people to afford more house than they otherwise could alone. Just make sure to consider your co–owner carefully, both in terms of finances and in terms of your personal relationship with them,” adds Orefice.
Can more than two people buy a house together?
What if you want to buy a home with multiple family members or a small group of friends? The good news is that you may be allowed to have three or more co–borrowers on the loan, title, and deed.
A conventional mortgage backed by Freddie Mac will allow up to five co–borrowers and a Fannie Mae–backed loan allows up to four co–borrowers.
When it comes to VA, USDA, and FHA mortgage loans, there is no set limit on the number of co–borrowers permitted. However, you can expect a lot of scrutiny from lenders if you’re hoping to buy with a large group of people.
“While there is no set limit as to how many people can apply together for certain mortgage loans, it would be challenging to find a lender that will allow an excessive amount of people on one loan. The most I’ve seen apply for a mortgage together in my career has been four applicants,” Gelios says.
Buying a house with someone else: FAQ
Yes. Two co–borrowers who each qualify for financing are allowed to be on a mortgage loan as well as on the deed and title of a home.
Yes. Two friends, including a non–married couple as well as two relatives or two investor partners, can purchase a home together as co–borrowers on the mortgage loan.
Each co–borrower listed on the mortgage is also a co–owner and has an ownership stake in the home. That means that each party has an equal financial responsibility to repay the mortgage debt and, when it’s time to sell, the profits on the sale will typically be shared equally by all co–owners.
A conventional conforming mortgage backed by Fannie Mae will permit up to four co–borrowers on a loan. Freddie Mac will allow up to five co–borrowers. FHA, USDA, and VA mortgage loans have no set limit on the number of co–borrowers allowed, though more than four or five is extremely rare.
If one borrower has a lower credit score and/or larger debts that could affect loan qualification, the lender may raise the interest rate or deny financing. Also, if one co–borrower is not able to contribute financially to the housing costs, including mortgage payment, the other co–borrower will have to cover the shortfall. It can be challenging, as well, to get both parties to agree on who is responsible for what and what to do if one party wants to sell the home but the other does not.
The biggest advantage of purchasing a home with another co–borrower is that your combined income will likely allow you to be approved for a higher loan amount. Plus, together you can probably make a larger down payment than you would be able to if you purchased alone. You’ll also be sharing in the costs of ownership, including maintenance, repairs, and home improvements.
Check your home buying options
Co–buying can be a great way to share in the benefits of homeownership while only paying a portion of the cost.
If you want to buy with someone else, make sure you’re both eligible for the mortgage. Check with a lender to see whether you qualify and how much house you can afford together.
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.