Joining forces with others for a common cause can lead to better outcomes than going it alone. Case in point: buying a house, especially if you have a low credit score, limited credit history, or limited income.
Getting another co-borrower or co-signer to join you in the transaction can improve your chances of securing a mortgage loan and get a competitive interest rate.
What's in this Article?
The short answer: yes.
Most instances of co-borrowing involve only two parties. But three and even four people can purchase a property collectively, and many mortgage lenders allow for this arrangement.
“Homes can be bought by multiple people, even if they are not related. If the buyers are unmarried, the loan applications will be filled out separately – but all will be included on the mortgage note as well as the title of the home,” explained Ralph DiBugnara, founder of Home Qualified, a New York City-based digital resource for buyers, sellers, and real estate agents.
Jeff Names, a Hudson, Ohio-based loan officer with Fairway Independent Mortgage Corporation (Fairway owns Home.com), recalled helping a family move up to a better living situation by giving them a loan with three related co-borrowers.
“The mom, Gharsha Yaar, moved from Afghanistan to the United States in 2002 with five kids, after her husband passed away in 1999. They were very crowded in their government rental,” Names recalled. “Gharsha’s ultimate goal was to find and purchase her forever home. But she was limited in her search for adequate square footage based on her lesser income at the time. We experimented with the idea of adding another person to the loan so that they could explore higher-priced homes.”
Yaar’s adult daughter agreed to be a co-borrower, but even together, the pair barely met the income qualifications of the house they hoped to buy. Fortunately, Yaar’s adult son offered to be a third borrower, which helped them across the finish line.
“At first, I had no idea how I could make this dream happen for them, but they believed in me and it worked out,” Names said. “They purchased in 2014 and ended up refinancing with me a year later, which saved them a lot of money.”
That kind of creative thinking can help other prospective homebuyers realize their dreams of homeownership. The big question is how you structure the arrangement.
There are two ways in which three people can buy a house together. They can either sign the loan as co-borrowers or co-signers.
A co-borrower will complete an application for the loan with you as a primary applicant, which means they will sign the deed along with you and will be listed on the title. This person is entitled to live in the home because they have an ownership stake in the property, so you can also think of them as a co-owner. Co-borrowers also share in the equity the property accrues.
Co-borrowers often include married couples, unmarried couples, or domestic partners, though other family members can be on the loan as well, as in the case of the Yaar family. Additionally, unrelated parties such as business partners or friends can buy a home together. There is no prior relationship required.
A co-signer, by contrast, serves as a “guarantor” who agrees to accept responsibility for repaying the loan even if the primary borrowers become unable to make their payments. Oftentimes, borrowers enlist co-signers who have excellent credit and low debts, as their strong financial circumstances can counterbalance a low credit score or limited credit history.
Co-signers are not listed on the deed or title and may not live in the home. For example, a parent who co-signs a loan for a credit-challenged adult child so that the latter can become a first-time homeowner. The parent likely will not live in the house, but the loan will be their responsibility if their child cannot make their payments.
This article will primarily focus on purchasing with co-borrowers who plan to live together in the same residence.
Why would 3 people want to buy a house together?
“[Co-borrowing] allows people to cohabitate so that they can buy a bigger home or a better investment than they can afford if they were buying on their own,” DiBugnara said.
Craig Luedtke, director of title operations for Chicago-based Landtrust Title Services, explained that co-borrower arrangements come in handy for several different scenarios.
“Often, two people who may be friends or an unmarried couple will decide to purchase a property, but a third borrower, or co-signer, is needed for the signing of the promissory note,” he said. “For instance, two parents of a borrower may also need to be on the mortgage and title for the transaction to proceed.”
Another example would be if two sisters choose to purchase a property together but also want their mother to be on the title.
“Here, the mother’s creditworthiness isn’t required for loan approval,” Leudtke continues. “All three would need to be named on the deed with desired tenancy, whether or not the mother is on the note. Because the mother is going into title on the deed, all three would need to be named as co-borrowers/mortgagors on the loan.”
According to Names, conventional loans backed by Fannie Mae and Freddie Mac typically allow up to four or five co-borrowers on a mortgage loan.
“Fannie allows for a max of four borrowers, and Freddie will permit up to five borrowers. But for manually underwritten loans, there is no limit on the number of co-borrowers,” he said.
Manually underwritten loans are applications not run through a computerized approval system but fully reviewed by a human underwriter.
For FHA, VA, and USDA loans, there is also technically no limit on the number of co-borrowers allowed, according to Names.
The verdict on how many borrowers are allowed usually rests with the lender, Luedtke said.
“I’ve seen as many as eight borrowers on one mortgage loan,” he says. “There may be instances such as multiple heirs of a deceased person vesting ownership, with proper documentation pursuant to an unprobated estate. For example, five children of a deceased father choose to be listed on the title and then would be required to sign the mortgage.”
But if you are simply looking to purchase a home, rather than take ownership of one that’s already in the family, you’ll likely want to keep the number of co-borrowers to five or less.
As stated earlier, four borrowers are commonly allowed on a loan, depending on the loan type and lender.
But you’ll all want to get your credit scores as high as possible and strengthen your finances before you apply for the loan.
“What multiple borrowers should be aware of is that the bank will use the lowest of all your credit scores to qualify for the loan. In other words, the interest rate and program guidelines will be based on the lowest credit score of the group, not the average and/or highest,” DiBugnara said. “This can become detrimental to the loan if there is a large difference in credit scores between the borrowers.”
Multiple Borrower Credit Score Example
|Borrower||Representative Credit Score|
|Qualifying credit score||622|
Additionally, be aware of each applicant’s debt load. Adding a borrower with high debts and lower income can actually reduce the amount you’ll qualify for.
For instance, someone with a part-time job who makes $1,000 per month, but owes $700 per month in car and student loan payments probably won’t help you qualify. You may be better leaving them off the loan entirely.
That’s why it’s important to talk to a lender early on to find out how much you can collectively afford.
It’s also a good time to check on eligibility requirements based on your use of the home.
Buying a primary residence in which all or some of you will live comes with different requirements than buying an investment property in which you all have a share. In the former case, the down payment and credit score requirements will be lower, while an investment property will demand better credit scores, a significantly larger down payment, and cash reserves.
Purchasing a home with multiple co-borrowers may help cinch the financing, but it can lead to complications later. For example, what happens if one party wants to sell the home but the other two parties want to stay put?
“Before buying a home with multiple people, the group must consider how ownership and equity will be shared, maintenance responsibilities, and how and when they can sell the property,” said Khari Washington, a real estate professional in Riverside, Calif. “If these factors are not discussed ahead of time and preferably put in writing, the investment could challenge their relationships with each other.”
How and when the group can sell the property will depend on the legal ownership structure created for the investment. That’s why experts recommend drawing up and signing a legal contract, with the help of an attorney, when multiple co-borrowers are involved.
Related reading: Is Buying a House With Your Boyfriend or Girlfriend a Good Idea?
“Many ownership structures require all parties to agree to sell before they can unload the property. Other agreements need a simple majority of the owners to agree to sell. Additionally, some agreements allow a person to sell their interest in a property or for the other owners to buy that interest,” Washington explained.
Common ways to hold title when buying a home together
One of the biggest decisions you’ll make when buying a house with another person, or several people, is how you’ll take title to the home:
- Sole ownership: One person would be on the deed to the home and would have the right to sell, or not sell, the home, regardless of the other borrowers’ wishes
- Joint tenancy: All co-borrowers would hold equal co-ownership rights to the house
- Tenants in common: All co-borrowers have ownership rights, though these do not have to be divided equally. This may be an option if one person puts less money down on the house or pays a lower amount toward the monthly mortgage payments
You’ll want to discuss your intentions for your share of the property — do you plan to move out after a few years? Do you all hope to turn the home into a rental property at some point? Although your plans may change, it’s important to be clear on your goals before making a home purchase with someone, particularly if they are not your spouse or you don’t plan to live together indefinitely.
Here’s another sticking point: If one borrower can’t contribute to the mortgage payments, perhaps because they’re suddenly unemployed, the burden to make up the difference will fall on the other borrowers.
Discussing this possibility before purchasing and deciding what should happen if it occurs (and putting it in writing) is a smart idea. You may all want to commit to having a few months’ worth of your share of the mortgage payments in savings prior to closing on the home.
Can 3 people buy a house? FAQs
Conventional loans backed by Fannie Mae and Freddie Mac typically allow up to four and five co-borrowers, respectively, on a mortgage loan. FHA, VA, and USDA loans do not limit the number of borrowers on a loan, although lenders can use their discretion when qualifying borrowers and can set their own limits on the number of people who can be on a mortgage.
If you share ownership equally with someone and they do not want to sell the home, you can offer to buy out their portion of the home or request that they allow you to refinance to a new loan on which you are the only borrower.
Before buying a home with multiple people, think about how and when your group can sell the property, which will depend on the legal ownership structure created for the investment. Experts suggest creating and signing a legal contract, with the help of an attorney, that stipulates what happens if one or more owner/borrower parties want to sell the home.
Depending on the loan type and the lender, you can have three or more borrowers on a mortgage loan. You may be able to have up to five borrowers on a conventional loan, and government-backed loan programs do not stipulate a maximum number of borrowers. But lenders can set their own limits.
Can 3 people buy a house together? Yes, but think carefully about who you choose to purchase a home with, as you will not be able to remove them or yourself from the title unless you refinance down the road. Discuss what each party’s responsibilities will be, and how to resolve conflicts and disputes that may arise.
Collaborating closely with your real estate attorney can help you make wise choices and ensure that all co-borrower’s rights are protected before you buy the home.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.
Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.