More California Home Buyers Are Using Mortgage Co-Borrowers

Across California, homes have become more expensive over the last couple of years. This is the result of strong demand and limited supply within local housing markets.

As a result of these trends, more and more California home buyers are using co-borrowers to qualify for a mortgage loan and buy a house in the Golden State. In fact, a recent report showed that parts of California have the highest percentage of co-borrowers, as a share of total mortgage lending activity.

Related: The future for California home buyers

Mortgage Co-Borrowers Common in California

On September 5, 2017, ATTOM Data Solutions published its latest U.S. Residential Property Loan Origination Report. Among other things, this report showed an increase in the number of mortgage co-borrowers nationwide, and especially within California’s real estate markets.

This report is derived from information that is publicly available, such as deeds of trust and mortgage recordings. It analyzes data from 1,700 counties across the country, accounting for more than 80% of the U.S. population. So it’s a pretty good indicator of what is happening across the mortgage industry.

The latest data showed that 22.8% of all purchase loan originations during the second quarter of 2017 involved co-borrowers. In this context, a co-borrower is defined as “multiple, non married borrowers listed on the mortgage or deed of trust.” That was an increase of 21.3% from the previous quarter, and a 20.5% increase from the same timeframe last year.

The share of mortgage co-borrowers as a percentage of total purchase originations varies from one area to the next. Typically, this financing strategy is more common in higher-priced real estate markets – and for obvious reasons. When borrowers find it difficult to qualify for a mortgage on their own, they often use co-borrowers to boost their chances of approval. This is especially true for California mortgage shoppers. In fact, several California cities were in the top five.

According to the September 2017 report:

“Among 42 cities with at least 1,500 purchase loan originations … those with the highest share of co-borrowers were San Jose, California (50.9%); Miami, Florida (45.2%); Seattle, Washington (39.1%); the Southern California cities of Los Angeles (31.1%) and San Diego (29.4%)…”

Why Some Home Buyers Turn to Co-Borrowing

We talked about one of the primary reasons why home buyers in California use co-borrowers to qualify for a mortgage loan. It’s often the result of high home prices, relative to average household income. So it’s only logical to see a higher percentage of co-borrowers in more expensive real estate markets, including many across California.

Unlike a co-signer (who might share the debt obligation but typically does not have ownership rights), a co-borrower does gain ownership rights to the house. And depending on the situation, they might increase the chance for mortgage loan approval as well.

In some cases, the second person’s income can help qualify for a loan. Similarly, a co-borrower with significant assets or savings, excellent credit, or other financial attributes could improve the chances for mortgage approval.

In the current lending environment, a lot of different mortgage programs allow for co-borrowers. This is true for government-backed home loans, such as the FHA program, as well as conventional mortgage products that are not insured by the government.