Overview

Co-buyers generally take one of two approaches to the mortgage application process:

1. Cowboy approach: passive, little to no preparation, focus on the finish line (common)
2. Strategic approach: intentional, prepared, long-term goals in mind (past CoBuyers, you)

A strategic approach leads to better outcomes. We’ve covered challenges; let’s talk about solutions.

At a Glance

In the mortgage application process, you and your co-buyer(s) apply for a loan to determine how much you can borrow and at what terms. The critical document you want before looking for homes is a mortgage pre-approval letter from at least one lender.

In short, mortgage lenders price risk and originate mortgages. To do this, the mortgage lender assesses your creditworthiness and ability to repay. In a co-buying scenario, you’re assessed individually and collectively.

The time it takes to get pre-approved depends on:

• Your preparation
• Your circumstances
• The mortgage lender, and their personnel

It’s possible to get preapproved for a mortgage in a matter of days. To do this, we suggest you complete the Planning & Building Consensus stage, gather all the documents you’ll need, and follow the guidance provided in this course.

💡 Pro Tips

1. It’s important to get preapproved for a mortgage before you start home-hunting with a real estate agent. 2. Prequalification is not the same as preapproval for a mortgage. Preapproval for a mortgage happens after the lender has verified financial inputs, including credit history. It’s regarded as a more robust indication of the amount and terms at which you can borrow.

Understand the Context

It’s helpful to take a quick look at the playing board before making any moves.

Applying for a mortgage is a transactional process between co-buyers and a lender.

As co-buyers, you are applying for a loan to determine how much you can borrow and on what terms. You want the best terms available on the mortgage product of best fit given the loan amount, the expected holding period, your finances, the market environment, and any special circumstances. Your ultimate objective is to purchase a home. Because your circumstances are more complex compared to a “typical” home purchase, there is greater execution risk. The likelihood of achieving your objective increases in relation to your lender’s experience, skill, and ability to execute.

The lender is a business that prices risk, extends credit to eligible borrowers, originates the loan, and often sells that loan onward. To do this, the lender first assesses borrowers’ creditworthiness and ability to repay according to well-established guidelines. Their ultimate objective is to make money. In context, the likelihood the lender achieves their objective increases in relation to your (collective) readiness and diligence throughout the process.

Both sides want to do a deal but come at it from different angles. Naturally, co-buyers want to pay less (lower interest rate), and lenders want to make more (higher interest rate). For the reasons discussed earlier, LOs don’t necessarily fully understand where you’re coming from. Ideally, you want to close the gap to secure the best possible outcome.

How?

1. Select the most suitable lender/LO for the job. Remember, this job involves your money, home, and relationship(s).
2. Outperform as customers. Think readiness (being prepared) and diligence.
3. Employ tactical empathy. Remember, you’re dealing with humans.
4. Line up alternatives. Having options is smart and increases your bargaining power.

These take work, but it’s worth it.

How Lenders Assess Co-buyers

We mentioned that mortgage lenders

☑️ Price risk

☑️ Originate mortgages

☑️ Execute transactions through the closing of the home purchase

To do this, mortgage lenders assess your individual and collective:

• Creditworthiness: a general measure of (co)borrowers’ risk to a lender.
• Ability-to-repay: “the reasonable and good faith determination most mortgage lenders are required to make that you are able to pay back the loan.” (Source: CFPB)

These are often broken down into “the 4 Cs”: Capacity (income), Capital (savings), Credit (credit score and history), and Collateral (the home itself).

Adapted to co-buying, here’s what you can expect the mortgage lender to look at:

1. Net Income the cumulative income and debt position of all co-borrowers.
2. Net Assets: the cumulative funds available (i.e., in bank accounts) of all co-borrowers.
3. Credit: the lowest credit score of all co-borrowers.

Notice that for Net Income and Net Assets, these are additive: more is better. For Credit, your eligibility and terms are assessed according to the lowest credit score.‍

Net Income:

• Lender looks at employment status.
• Lender looks at two years of each co-borrower’s income and whether income is likely to continue over the next year.
• Lender assesses your pooled debt-to-income ratio (DTI), a simple forward-looking measure of your ability to repay your mortgage expressed as a percentage.
• Lower debt-to-income ratios are preferable for borrowing purposes.
  
  

Net Assets

• Lender looks at combined assets in co-borrowers’ bank accounts.
• Financial assistance from friends and family can be counted, with conditions.
• Funds need to be verified.
• Higher dollar amount supportive of borrowing, all else equal.

Credit

• Lender looks at each co-borrowers credit score and uses the lowest credit score.
• Higher credit scores are supportive of borrowing, all else equal.
• Note: there are different measures of credit score, and the score you see on online platforms or apps is not what a mortgage lender uses.

As the lender works to assess your creditworthiness, determines your eligibility to borrow (and at what terms), and evaluates the mortgage of best fit, they’ll also look at:‍

➕ Occupancy status: who will occupy the property and who will not

➕ First-time home buyer status of each co-borrower

➕ The existence of mitigating factors:

• Past credit history and whether you have any past credit events
• Pending litigation of a financial nature
• Name changes, arrests, questionable address history

The CoBuy Wizard worksheet covers a lot of this information. By completing the CoBuy Wizard worksheet and sharing this information with your mortgage lender, you’ll provide them with a strong starting point. They’ll verify all inputs on their end.

How the Mortgage Application Works

Note: We focus on the co-buy-specific aspects of starting the mortgage application and obtaining preapproval. Your Loan Officer will guide you through the steps.

1. Gather all documents you’ll need ahead of time.
2. Shortlist and rank mortgage lenders.
3. Contact the mortgage lender(s) to request access to their online loan application (or a hard copy).
4. Each co-borrower will complete a mortgage application. Married couples can use one form; otherwise, separate forms are required. The mortgage lender will aggregate your financial inputs.
5. Submit all your documents and confirm receipt with your mortgage lender.
6. The mortgage lender will pull credit for each co-borrower to obtain a full credit report. Credit reports show a broad range of financially related information, including past employment, addresses, names, marriages, arrests, and legal matters on the public record from the last ten years.
7. The mortgage lender will contact you to fill in any missing information or submit missing documents.
8. The mortgage lender will perform all verifications and checks on your financial inputs.
9. You’ll receive a determination on eligibility and terms. If you’re eligible, this will include a mortgage preapproval letter.

With a mortgage preapproval letter, you’re ready to connect to a real estate agent and start your home search.

💡 Pro Tip

Be upfront and disclose everything relevant when you apply for a mortgage.

A Loan Officer may not share the details of their credit and background checks with other co-borrowers, but they’ll likely have access to all relevant information.

📝 Note From The Field

We’ve seen cases where a co-buyer involved in current litigation did not disclose that information to their group members. The lender had to tell the group that they would not qualify for a mortgage loan at that time, but opted not to share the one individual’s situation with the other co-borrowers based on their interpretation of professional best practice. The other co-borrowers assumed that the lender was being unreasonable. In reality, their group member had not been transparent.

What You’ll Need

Most lenders will require the following from all co-borrowers:

• Government-issued identification
• Proof of residence
• Income and asset documentation:
  • Last 2 months of pay stubs
  • Last 2 months of bank statements for all accounts
  • Last 2 years of federal tax returns
  • Last 2 years of state tax returns (if applicable)
  • Last 2 years of W-2s
  • For self-employed individuals: profit and loss statements
• Completed Loan Application
• Credit Report Authorization

The above information represents the bare minimum. Make sure you and your co-buyers have the relevant documentation ready. Your loan officer won’t just thank you; they’ll push you to the top of their list. Your prep work will benefit you.

Depending on the mortgage lender you choose to work with, you’ll complete the loan application and confirm authorization to check your credit via an online platform or through hard-copy documents.

💡 Pro Tip

Almost all residential mortgage applications are based on a standard form called the URLA (Uniform Residential Loan Application). This applies whether you use a mortgage lender’s online platform or not.

The URLA is a standardized document used by borrowers to apply for a mortgage that is jointly published by the GSEs and has been in use for more than 40 years in all US states and territories.

You can learn more about this form and review the base document here. We suggest you do so before making a loan application.

How to Choose a Mortgage Lender

Quick review:

• Choosing the right lender is important and will affect how much you pay, whether or not you identify the mortgage of best fit, and how things go during your home purchase.
• Loan Officers are generally your point of contact at a mortgage lender.
• Loan Officers are generalists who don’t focus on co-buyers.
• Loan Officers are salespeople.
• Loan Officers are backed by a cross-functional team of professionals.

A handy analogy here is to imagine you’re in charge of putting together an all-star, cross-functional team--a sports team, a business team, or a team to run a local community group. The caliber of your team will have a strong bearing on your success. Good news: as co-buyers, you’re the managers, and you can choose who you work with. You want to select folks who have the right experience, have specialized experience in co-buying/co-ownership, and who have your best interest at heart. You want a Dream Team, not the junior varsity squad.

🙊 Heads Up

Some mortgage lenders do not want your business.

Why not?

It depends. A lender’s appetite for your business can depend on macroeconomic factors, their business model, their current risk appetite at a corporate level or team level, their capabilities, the workload they perceive, or any other considerations.

One thing is sure: if a mortgage lender doesn’t want your business, they won’t tell you outright. You’ll recognize the signs if you look for them: poor response times, uncompetitive pricing, or generally poor service standards.

You want to identify and select a mortgage lender who wants to work with you.

💡 Pro Tip

Online mortgage lenders are generally not a great fit for co-buyers, in our experience.

Most lenders have online platforms these days, but what we call online mortgage lenders are those who centralize all aspects of the mortgage process via an online platform. Their systems and processes are developed for standard cases and generally involve less human interaction.

Running the numbers from publicly-available data sets, the majority of the mortgages originated by these companies are “mass-market” and “plain vanilla” in nature (which tracks 100% with our experience).

Selection Criteria

When searching for the right mortgage lender, you want to conduct research at two levels:

1. Institutional level (Company)
2. Personnel level (Loan Officer)

Criteria you should look for

• Demonstrated track record
• Specialization in co-buying
• Consultative vs. transactional in how they operate (i.e. Not treating your largest purchase as another transaction, but helping you navigate the process efficiently and effectively.)
• Availability (i.e. Do they have bandwidth? This is not a given.)
• Strong communication
• Team players (Note: Real estate is a team sport, and many parties will be involved!)

See the end of this section for a full checklist.‍

Questions‍

One of the best ways to qualify mortgage lenders and Loan Officers is to ask them questions. Asking questions will help you to gauge their qualifications, expertise, and appetite to deal with you.

Examples of questions to ask mortgage lenders/Loan Officers:

• How long have you been in the business?
• How many primary mortgages do you close per year?
• How is your business structured? Are you a Mortgage Lender or Mortgage Broker? What does this mean for us?
• Have you dealt with many [cases like ours]?
• How have things gone wrong when you’ve dealt with co-buyers/co-borrowers/[cases like ours]?
• What systems do you have for communicating with all parties at each critical step?
• Based on the initial information we’ve shared, what type of mortgage product do you think makes sense for us (term/structure/special programs)?
• Do we need a competitive pre-approval letter to get your best pricing available?
• What questions do you have for us as co-borrowers?

You want to test upfront. This will provide valuable information, save time, and demonstrate whether the mortgage lender/Loan Officer has experience dealing with co-buyers/co-borrowers.

Finally:

👉 Do your research

👉 Do shop around

📝 Note From The Field

The best Loan Officers that we’ve worked with across many joint purchases over the better part of a decade tell us that co-buyers don’t ask enough questions.

One LO says (confidentially):

“It doesn’t make sense that when you’re taking a 30-year mortgage, the only question is what is your best rate? We see [co-buyers] getting the wrong product for their time horizon or goals [in the wild]. For instance, a 10-year Adjustable Rate Mortgage may be appropriate for one situation and not for another. Many folks don’t ask the meaty questions:

→ If this is an investment property, how will this affect the down payment needed?

→ If the horizon is five years versus 30 years, how does this affect financing?

This is why co-buyers get bottle-necked into simple transactions without knowing what they’re doing. It’s not their fault, but asking better questions can force a better outcome no matter which lender they choose to work with.”

Takeaway: it’s your money, home, and relationship(s) on the line. Get the info you need to feel confident to move forward.

Other Considerations

Special circumstances

If any of the following apply to you, or you think they might, do flag them to your mortgage lender/Loan Officer:

• First-time Home Buyer (anyone in your group)
• Low-to-moderate income
• Military or veteran of the armed services
• Native American background
• Islamic faith (relevant for Halal financing)
• Purchasing a property in a rural area

These factors may qualify you for certain mortgage products, programs, or preferential funding.

🔎 Low-to-Moderate Income Households (LMI)

A household with a combined income of less than 80% of the area median family income qualifies as Low-to-Moderate Income (LMI).

Suppose you and your co-buyer(s) are purchasing a home as your primary residence, and your combined income falls beneath this threshold. In that case, you may be eligible for down payment assistance and other financial support.

Click here to check the median family income in your County

Investment properties‍

If no co-buyers will occupy the home as a primary residence, you will need a mortgage for an investment property. This type of loan typically has a higher interest rate and carries different terms.

Multi-family homes

Residential mortgages are available for single-family homes, duplexes, triplexes, and fourplexes. Beyond a fourplex, a property is generally considered a commercial property for lending purposes. Commercial mortgages are evaluated based on the investment value of the property (i.e., anticipated rents), in addition to other factors. The costs for a commercial mortgage tend to be higher than a residential mortgage. Also, the mortgage term may be shorter.

Note: Commercial mortgages are beyond the scope of this course.

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