As home prices have risen, so, too, has the number of people buying a home with a co-borrower. Last week, we talked with Prosperity Home Mortgage about the process of buying a home with a co-borrower and this week, we are exploring the legal implications of such a purchase.
Legalities of a co-borrower relationship
If you plan to share mortgage expenses with a non-occupying co-borrower, you should discuss your options in depth with your lender. You and your co-borrowers need to decide if the co-borrowers are on both the mortgage note and the deed.
Ron Wivagg, national sales support manager for Prosperity, said it is important to realize that even if a co-borrower is identified as a non-occupant, that person is ultimately responsible for the loan if the other borrower does not pay.
“There are tax implications and legal implications to becoming a co-borrower, so people should consult their tax advisor and an attorney to make sure they understand the consequences of this,” said Wivagg. “For instance, most parents want to be on the deed if they are a co-borrower. They may or may not have an interest in the profits from a future sale, but, in the worst-case scenario, they should have access to the property if their child dies.”
When you start the discussion about co-borrowing or co-ownership of property, you should also think about what occurs if the relationship ends.
“If, at some point in the future, when you can handle the mortgage on your own, you may want to stop having a co-borrower,” said Wivagg. “Even if you tell your parents they don’t have to keep helping you pay your mortgage, there’s no way to remove them from the loan unless you refinance.”
Removing someone from the deed is easier: you and your co-borrowers can file a quit claim to have someone removed from the deed.
Sharing expenses can make homeownership viable
In addition to the options for co-borrowers, Wivagg points out the rules for some mortgage programs allow for more flexibility. For example, Fannie Mae’s “HomeReady” loan program allows borrowers to qualify with a debt-to-income ratio of up to 50 percent. Most mortgages today only allow a maximum debt-to-income ratio of 43 percent and in some cases lower.
“There are lots of ways to handle co-borrowers and co-signers for a loan,” said Wivagg. “It’s important to consult with a lender who can help you determine the best way to qualify for a loan that meets the goals of everyone involved.”
All first mortgage products are provided by Prosperity Home Mortgage, LLC. (877) 275-1762. Prosperity Home Mortgage, LLC products may not be available in all areas. Not all borrowers will qualify. Licensed by the NJ Department of Banking and Insurance. Licensed by the Delaware State Bank Commissioner. Also licensed in District of Columbia, Georgia, Indiana, Maryland, Michigan, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia. NMLS ID #75164 (NMLS Consumer Access at http://www.nmlsconsumeraccess.org/)