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There's no legal limit to the number of borrowers who can apply jointly for a mortgage, but the practical limit on most U.S. loans is four or five borrowers. While applying jointly with others can help you qualify for a larger mortgage, you should think through all the implications of joint ownership and shared debt before you make the leap.
Here's the lowdown on seeking a mortgage with co-borrowers.
What Are the Benefits of Multiple Co-Borrowers?
When you apply for a mortgage with one or more fellow applicants, the lender considers all of your incomes, debts and credit profiles in its decision. This information is used to determine whether the lender will issue the loan, the interest rate and fees to set on it, and the amount you can borrow.
It's common for couples to apply jointly for a mortgage when buying a home they'll share. And it's not altogether uncommon for friends such as longtime housemates to apply for a mortgage together. In these scenarios, at least one applicant typically benefits from the credit history or financial strength of the other applicant(s):
- A borrower with a limited or spotty credit history who might otherwise be turned down for a loan might qualify when considered along with a co-applicant.
- An applicant who'd qualify for a relatively modest loan amount could qualify for a larger loan amount by applying jointly with another party.
- A group of four or five applicants could, on the strength of their collective incomes and strong credit scores, qualify to buy a multi-unit building to occupy or to use as an investment even if none of the parties could qualify for financing on their own.
Limits on the Number of Co-Applicants
It's rare in the U.S. for a lender to consider a mortgage application from more than four or five individuals. The reason is that most home loans issued in the U.S. are conforming loans: They meet the criteria for purchase by Fannie Mae and Freddie Mac, the government-backed corporations that buy most of the single-family home mortgages in the U.S. from community lenders.
Both of these entities use special software to assist in processing loan applications. Fannie Mae processes applications with an automated tool called Desktop Underwriter, which accepts a maximum of four applicants at a time. Freddie Mac's automated application-processing tool, Loan Advisor Suite, allows up to five co-applicants per loan.
If you wish to have more than a total of five applicants on your mortgage application, you may be able to find a lender that will allow it. But even if you can, the complexities of working with a large number of co-applicants may make it an ill-advised option.
Complications of Multiple Co-Applicants
It's certainly possible to have a harmonious result when borrowing jointly with a number of friends or family members, but uncertainty about the future can make the process risky.
Spouses never take out mortgages with the intention of divorcing, for instance, but marriages end nonetheless, forcing hard decisions about whether to sell the home or have one party keep it. The issues can be even more complex with a greater number of borrowers, even if all are acting in good faith.
Contingencies to think through before entering into a mortgage with multiple co-applicants include:
- What if one of the co-borrowers is unable to make mortgage payments? If job loss, disability or other factors make one of the borrowers unable to keep up with payments, how will the remaining parties deal? Will you have a provision to buy out the other party? To sell their share to another? (Removing a co-borrower from the loan could require refinancing, an arrangement that could mean higher payments.)
- What if some co-borrowers want to sell the property but others do not? If two couples buy a duplex, for instance, and one of the four co-borrowers gets a job across the country, how will that be addressed? Must the property be sold? Can the couple staying on buy out the others? Can the vacated property be rented out to cover the mortgage payments? If so, who collects the rent and pays for maintenance of the unit?
- What if a co-borrower dies? If the deceased person's share of the property goes to an heir, do the other co-borrowers have the option (or obligation) to buy out their late partner's share? Should co-borrowers take out life insurance on one another to cover their respective shares of the property's cost?
How Do You Apply for a Loan With Multiple Co-Borrowers?
Applying for a mortgage with multiple applicants is essentially the same for each applicant as if they'd applied for a loan on their own: The lender will typically require each applicant to provide:
- Permission to run a credit check, including review of credit reports at one or more of the national credit bureaus (Experian, TransUnion or Equifax) and calculation of credit scores based on the contents of one or more of those reports. Lenders set their own cutoffs for minimum acceptable credit scores, but Fannie Mae and Freddie Mac both require all applicants to have a FICO Score of at least 620 to qualify for conforming loans.
- Proof of income in the form of pay stubs, tax returns or bank records reflecting direct deposits. Lenders typically don't set minimum income requirements, but they'll want to see that you have a reliable source of income, and that you earn enough to cover your loan payments.
- Evidence of monthly debt obligations, for purposes of calculating a debt-to-income ratio (DTI). DTI, the percentage of your monthly pretax income devoted to debt payments (including the anticipated amount of the mortgage payment), is used as a measure of your available income and ability to afford the mortgage. Lenders differ in their requirements. Fannie Mae and Freddie Mac set a default maximum DTI of 36%, but allow for DTIs as high as 45% to borrowers with strong credit scores who meet other eligibility requirements.
How Is a Co-Borrower Different From a Cosigner?
The distinction between a co-borrower and a cosigner is that a co-borrower shares responsibility for the mortgage loan and shares ownership in the property being financed, while a cosigner shares responsibility for the mortgage but is not named on the deed or title to the property and therefore does not share ownership.
This difference is far from trivial, but from the standpoint of a mortgage lender, cosigners and co-borrowers are identical: As loan applicants, all are subjected to the same evaluation process and, if the loan is approved, all are equally responsible for making payments under the terms of the loan agreement. If payments fall behind, the lender has legal recourse to go after any or all co-applicants to recoup money owed them under terms of the loan.
The Bottom Line
Teaming up with others for a joint mortgage application can help you qualify for loans in greater amounts or with better borrowing terms than you might get if you applied on your own. But the consequences of entering into a mortgage contract with multiple borrowers can be complicated, and it's wise to think them through carefully before moving forward. Anytime you're considering applying for a mortgage, it's wise to check your credit report and credit score well ahead of time, to clean up any inaccurate entries in the report and, if necessary, to take steps to spruce up your credit score.