Owning a home is part of the dream of many…and getting a mortgage, whether to buy or to build, is just one of the steps to getting there.
But it is still difficult to buy a home in these pandemic times. Even more so, it is tough to get a mortgage when house and land prices seem to be on the rise. Is it your modest income, debt servicing ratio or the high prices for homes or land? Or is it that the bit set aside for a down payment is not enough, or maybe you need someone else’s income or credit history to bolster your own and help you get into a home that suits your needs.
Whatever the reason, taking out a mortgage is most likely the biggest and most important financial commitment you will ever make. And the good news is, there is a lot you can do to improve your chances of getting a mortgage. If you find a co-borrower, buying house or land could be much easier, here’s why;
- A co-borrower is an additional borrower on a mortgage. Importantly, both the borrower and the co-borrower can have ownership of the property and are responsible for repaying the mortgage.
- Co-borrowing is a suitable option when both the borrower and co-borrower stand to directly benefit from the loan, and where both parties intend to make payments.
- A co-borrower applies for the loan with the borrower, and their total income usually helps to boost the borrower’s eligibility. The reality is both borrowers share the direct benefit of the loan while also sharing responsibility for repayment.
- With a co-borrower, the borrower can qualify for a higher loan amount, as it may add income and lower the overall debt servicing ratio. The lender, or banker, considers two incomes, instead of one. If one experiences a loss of income though, the other person in on the hook. Both must be confident that they can fulfill their end of the bargain.
- The co-borrower is tied to payments and is in it for the long haul. So if separation occurs, or in the event of a passing, payment are still split evenly. The lender or bank can demand repayment of the full loan amount from either party once the loan is approved.
- If you are lucky, and you have a mother or father or both who are willing and able to help, take them up on their offer. They can actually use the equity on their home to help finance the purchase too.
Become Home Smart
To help you, we have worked out some of the important questions you need to ask when considering a mortgage. As a guide, you can check out the main traps one can fall into when considering a co-borrower here.
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