{"id":4288,"date":"2024-11-13T15:51:27","date_gmt":"2024-11-13T20:51:27","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=4288"},"modified":"2024-12-05T15:46:32","modified_gmt":"2024-12-05T20:46:32","slug":"co-borrowers-101-when-sharing-a-loan-makes-sense-and-when-it-doesnt","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/co-borrowers-101-when-sharing-a-loan-makes-sense-and-when-it-doesnt\/","title":{"rendered":"Co-borrowing 101: when sharing a loan makes sense (and when it doesn\u2019t)"},"content":{"rendered":"\n<p>A co-borrower is basically your <a href=\"https:\/\/tomo.com\/blog\/who-does-what-in-a-mortgage-company-understanding-your-lending-team\/\" title=\"mortgage \">mortgage <\/a>sidekick\u2014someone who <a href=\"https:\/\/tomo.com\/mortgage\/app\/preapproval?utm_source=tomo_blog\" title=\"applies for a loan \">applies for a loan <\/a>with you and shares the responsibility of paying it back. This could be your spouse, partner, family member, or even a close friend. So, should you get one? Let&#8217;s find out. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Why you might want a co-borrower<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>More cash flow:<\/strong> pooling incomes means you can qualify for a bigger loan, giving you a better shot at snagging the home you actually want.<\/li>\n\n\n\n<li><strong>Better credit score:<\/strong> if your co-borrower has a solid <a href=\"https:\/\/tomo.com\/blog\/what-credit-score-do-i-need-to-buy-a-home\/\" title=\"credit score,\">credit score,<\/a> it can boost your overall creditworthiness and score you a lower interest rate.<\/li>\n\n\n\n<li><strong>Teamwork makes the dream work:<\/strong> splitting the financial load means less stress when the bills start piling up.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Reasons a co-borrower could hold you back<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Credit score matters:<\/strong> if your co-borrower has a shaky credit history, it could pull down your chances too.<\/li>\n\n\n\n<li><strong>You\u2019re in this together:<\/strong> if one of you misses payments, both of you are on the hook\u2014that\u2019s a real test of teamwork.<\/li>\n\n\n\n<li><strong>Future financial goals:<\/strong> consider how adding a co-borrower might affect other financial plans down the road.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Here\u2019s a table showing how a co-borrower\u2019s income can increase your home-buying power across different income scenarios<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>We\u2019ve assumed a debt-to-income (DTI) ratio of 36% and a mortgage interest rate of around 6%, with approximately 28% of total income allocated to housing expenses (covering principal, interest, taxes, and insurance). Home price estimates are based on a 30-year mortgage and can vary depending on down payment and location, but this gives you a helpful ballpark figure!<\/p>\n\n\n\n<p><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Scenario<\/td><td>Borrower income<\/td><td>Co-borrower income<\/td><td>Total income<\/td><td>Estimated monthly payment <\/td><td>Home price estimate <\/td><\/tr><tr><td>Solo borrower<br>(base scenario)<\/td><td>$85,000<\/td><td>N\/A<\/td><td>$85,000<\/td><td>~$1,980<\/td><td>~$297,500<\/td><\/tr><tr><td>With co-borrower (scenario 1)<\/td><td>$85,000<\/td><td>$150,000<\/td><td>$235,000<\/td><td>~$5,480<\/td><td>~$822,500<\/td><\/tr><tr><td>Scenario 2<\/td><td>$85,000<\/td><td>$100,000<\/td><td>$185,000<\/td><td>~$4,317<\/td><td>~$647,500<\/td><\/tr><tr><td>Scenario 3<\/td><td>$85,000<\/td><td>$75,000<\/td><td>$160,000<\/td><td>~$3,733<\/td><td>~$560,000<\/td><\/tr><tr><td>Scenario 4<\/td><td>$85,000<\/td><td>$250,000<\/td><td>$335,000<\/td><td>~$7,817<\/td><td>~$1,172,500<\/td><\/tr><tr><td>Scenario 5<\/td><td>$85,000<\/td><td>$400,000<\/td><td>$485,000<\/td><td>~$11,317<\/td><td>~$1,697,500<\/td><\/tr><tr><td>Scenario 6<\/td><td>$85,000<\/td><td>$50,000<\/td><td>$135,000<\/td><td>~$3,150<\/td><td>~$472,500<\/td><\/tr><\/tbody><\/table><figcaption class=\"wp-element-caption\">While these numbers are approximations and can vary depending on local market conditions, lender requirements, and specific financial situations, this table highlights how bringing in a co-borrower with a higher income can significantly boost your home-buying potential!<\/figcaption><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/tomo.com\/mortgage\/rates?utm_source=tomo_blog\">See today&#8217;s rates<\/a><\/div>\n<\/div>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is having a co-borrower common?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Absolutely! having a co-borrower is pretty common in the home-buying world.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>First-time buyers<\/strong>: a lot of <a href=\"https:\/\/tomo.com\/blog\/ready-to-buy-your-first-home-heres-how-to-do-it-2\/\" title=\"first-timers\">first-timers<\/a> team up with family or friends to make homeownership more accessible. pooling resources helps them qualify for a better loan.<\/li>\n\n\n\n<li><strong>Couples and partners<\/strong>: spouses or partners often apply together, combining incomes and credit scores to make getting a mortgage easier.<\/li>\n\n\n\n<li><strong>Investment properties<\/strong>: investors frequently bring in co-borrowers to share financial responsibility and boost purchasing power for rental properties.<\/li>\n\n\n\n<li><strong>Roommates or friends<\/strong>: in competitive markets, friends or roommates sometimes join forces to buy a home, especially when prices are high.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Can one co borrower buy the other out?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>For sure. Here&#8217;s what would need to happen. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Determine property value<\/strong>: first, figure out how much the property is worth. you might want to get a <a href=\"https:\/\/tomo.com\/blog\/what-is-a-home-appraisal-and-how-much-does-it-really-cost\/\" title=\"professional appraisal \">professional appraisal <\/a>to avoid any disputes over the price.<\/li>\n\n\n\n<li><strong>Agree on terms<\/strong>: both co-borrowers need to agree on the buyout terms, including how much the buying co-borrower will pay and how any existing equity will be handled.<\/li>\n\n\n\n<li><strong>Refinance the mortgage<\/strong>: the co-borrower who wants to take full ownership will usually need to <a href=\"https:\/\/tomo.com\/blog\/want-a-lower-rate-heres-when-you-can-refinance-your-home\/\" title=\"refinance\">refinance<\/a> the mortgage in their name only. this means getting a new loan that pays off the existing mortgage, freeing the other co-borrower from any financial obligation.<\/li>\n\n\n\n<li><strong>Transfer the title<\/strong>: after refinancing, the property <a href=\"https:\/\/tomo.com\/blog\/whats-a-mortgage-title-and-whats-it-to-you\/\" title=\"title \">title <\/a>needs to be updated to reflect the sole owner. this typically involves filing a new deed with the county recorder\u2019s office.<\/li>\n\n\n\n<li><strong>Legal and financial considerations<\/strong>: it\u2019s a good idea for both parties to consult with a real estate attorney or financial advisor to ensure everything is done legally and that both parties understand their rights and responsibilities.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">When it comes to splitting up as co-borrowers, here are several more options, in addition to one partner buying out the other<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Refinancing:<\/strong> One of you can refinance the mortgage, essentially getting a new loan just in your name. This pays off the original mortgage and frees the other person from any financial ties. It\u2019s a common move for keeping the house in one person\u2019s hands.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Selling the property<\/strong>: If you both want out, selling might be the simplest route. You can cash in on the property\u2019s value, split the profits, and move on without any lingering obligations. It\u2019s a clean break!<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Deed transfer:<\/strong> If one of you wants to stick around and keep the property, you can buy out the other\u2019s share. This involves a legal deed transfer to officially change ownership, and the buying co-borrower usually pays the selling co-borrower for their stake in the property.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Loan assumption:<\/strong> In some cases, the lender might let one co-borrower assume the mortgage, taking over the loan while the other steps back. It can be a smoother process but does require lender approval.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Partition action:<\/strong> If things get sticky and you can\u2019t agree, one of you might need to file a partition action in court. This legal move forces the sale of the property or splits it up, but be warned\u2014it can be a lengthy and pricey process.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Modification of ownership agreement:<\/strong> You can also create a new legal agreement to change your ownership stakes. This could mean adjusting percentages or laying out terms for future buyouts.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Mediation or arbitration<\/strong>: If discussions turn into a tug-of-war, consider bringing in a mediator or arbitrator. A neutral third party can help you work through the issues and find a solution that works for both sides.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/tomo.com\/mortgage\/affordability?utm_source=tomo_blog\">How much home can I afford?<\/a><\/div>\n<\/div>\n\n\n<div style=\"padding-top:var(--wp--preset--spacing--30);padding-bottom:var(--wp--preset--spacing--30);padding-left:var(--wp--preset--spacing--30);padding-right:var(--wp--preset--spacing--30);margin-top:var(--wp--preset--spacing--30);margin-bottom:var(--wp--preset--spacing--30);margin-left:0;margin-right:0;\" class=\"has-link-color wp-elements-c54b177fd5d2f341f8967a20726f2ac0 wp-block-post-author has-text-color has-contrast-color has-background has-tertiary-background-color has-large-font-size\"><div class=\"wp-block-post-author__content\"><p class=\"wp-block-post-author__name\"><a href=\"https:\/\/tomo.com\/blog\/author\/clairegtomonetworks-com\/\" target=\"_self\">Claire Gallaudet<\/a><\/p><p class=\"wp-block-post-author__bio\">Claire is a Mortgage Analyst at Tomo, where she explores the data and trends shaping the housing market. She is especially interested in how economic forces impact homebuyers. A Seattle native, she now lives in Austin, where she balances analysis and communications with teaching yoga and walks around the lake with her dog.<\/p><\/div><\/div>\n\n\n<p>If you&#8217;re ready to start your journey to homeownership, <a href=\"https:\/\/tomo.com\/mortgage\/app\/preapproval?utm_source=tomo_blog\" title=\"\">get pre approved with Tomo Mortgage today.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A co-borrower is basically your mortgage sidekick\u2014someone who applies for a loan with you and shares the responsibility of paying it back. This could be your spouse, partner, family member, or even a close friend. So, should you get one? Let&#8217;s find out. Why you might want a co-borrower Reasons a co-borrower could hold you [&hellip;]<\/p>\n","protected":false},"author":31,"featured_media":4292,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13,38],"tags":[],"class_list":["post-4288","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-home-buying-guide","category-mortgage-dictionary"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/tomo.com\/blog\/wp-content\/uploads\/2024\/11\/coborrowerjpg-jpg.webp","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4288","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/users\/31"}],"replies":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/comments?post=4288"}],"version-history":[{"count":8,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4288\/revisions"}],"predecessor-version":[{"id":4407,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4288\/revisions\/4407"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media\/4292"}],"wp:attachment":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media?parent=4288"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/categories?post=4288"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/tags?post=4288"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}