‘Co-Borrowing’ to Afford a Home is Gaining Popularity. Who’s Doing it and Why?
Home buyers are increasingly taking on co-borrowers to help gain an edge, defray costs and shoulder the burden in a housing market characterized by relentless demand and tight inventory.
A new report from real estate information provider Attom Data shows that in the second quarter, 22.8% of mortgage purchase applications involved a co-borrower, up from 21.3% in the prior quarter and 20.5% in the year earlier.
As MarketWatch has reported, there are dozens of programs, and a few private companies, that act as co-borrower by offering down payment in return for a share of equity in the home.
Of course, there are plenty of other ways to enter into a co-borrowing situation, including simply by enlisting helpful family members.
The public records data Attom gathers don’t show ages or other demographic characteristics of buyers who are doing co-borrowing, let alone the types of arrangements they’ve made, but the data does offer some fascinating information about borrowers and the market.
Attom did a deeper dive through their records for MarketWatch and determined that home buyers with a co-borrower are buying smaller but more expensive properties – and doing it with lower interest rates and more money down, which allows them to avoid paying mortgage insurance.
The table below comes from records for which Attom could provide all the data for each field noted, a restriction which the company says means it tends to skew toward higher-priced markets like those in Illinois, California, and Florida.
Co-borrowers Other borrowers All borrowers
Average Market Price $625,801 $525,834 $551,085
Average Loan Amount $491,367 $444,074 $456,023
Average Loan to Value 79% 84% 83%
Average Interest Rate 4.11% 4.28% 4.23%
Average Square Footage 2156 2223 2206
“My takeaway is that co-borrowers are buying in more expensive markets but having to put more down to compete in those markets,” Attom Vice President Daren Blomquist said.
“The more money down along with a co-signer who may have better credit is helping these co-borrowers secure a lower interest rate, but the homes they are buying tend to be smaller, an indication these skew toward first time homebuyers,” he added.
The median down payment for first-time buyers across the nation, among all types of borrowers and properties, is 6%, while among all borrowers it’s 10%.