Is it Good Idea to Use a Co-borrower?
Is it always a positive to use a co-borrower on your home purchase? Each real estate transaction has its own unique set of characteristics. So, it depends on the entire situation.
When you apply for a home loan, the lender’s main concern is your ability to repay the mortgage. The home is used as security to pay back the loan. Once you are more than 90 days late on your house payment, the lender is able to seize the home from you through a legal foreclosure process. Lenders are not in the business of managing homes, their objective it is to lend and make money.
Not every borrower is able to qualify for a mortgage on their own. Some give up while others get a co-borrower to qualify. Co-borrowers are normally spouses or partners, but you can also be a person you are not intimate with, such as a relative or friend.
Borrowers who are married or partners are not always both on the mortgage. Sometimes, one spouse has bad credit, and could trigger a loan denial. Although, an FHA loan has pretty lenient when it comes to credit scores. The spouse with good credit needs to make a decision to get the loan solely in his or her name. A second choice is if both spouses will be on title to the home.
For co-borrowers who are relatives or friends, the process is basically the same as that of spouses and partners, but your lender will give you and your co-applicant separate loan applications to fill out for the same loan.
Should people still purchase a home together if it’s not their spouse and if they’re able to qualify for a home loan by themselves?
When married couples go through a divorce, any homes they’ve bought during the marriage needs to be distributed equitably between the spouses unless there is an agreement stating otherwise.
In most situations, the home is listed for sale, sold, and the proceeds split among the two ex-spouses. In some cases, if both ex-spouses are on the loan, and one of them wants to keep the home, they may be able to refinance the loan to remove the other person from the loan. If one of the ex-spouses is bitter and doesn’t follow the judgment, the other can request the family law court to force the other party to follow the terms of the judgment.
When two friends or an unmarried couple buy a home together and then choose to go their separate ways, their choices are similar to a married couple. They have the option to sell the home and divide the proceeds, or refinance the other one off the loan. If they do not agree to one of the borrowers can begin the legal process that is appropriate to their state and file a petition.
If the property is a one- to- four- unit residential property, the division process happens this way:
- The home gets appraised.
- The home is then sold at Sheriff’s public auction with the starting bid at two-thirds of the appraised value.
- Any proceeds received are divided equitably between the owners. Equitable does not mean equal percentages, just a fair share. For example, the owner who paid more of the sales proceeds than the other owner(s) to maintain the home is usually awarded more by the court. The court is fair and impartial and tends to do its best to make sure that each party benefits equally.
