The Veridian Blog

Client Barbara is buying a new house along with her current roommate Mike. Barbara is putting down the entire down payment, but they will share title as tenants in common based on a 70/30 percentage split. Will they run into any financing problems?

According to these facts, I don’t know of a single lender who would require a minimum down payment from a tenant-in-common purchaser, regardless of what percentage title they take. Mike can put forth his own funds for 30% of the down payment (a common arrangement), 100%, or even 0% - it doesn’t matter when it comes to joint & several liability . In fact, if Barbara happens to earn enough income to qualify for the entire loan, Mike won’t even be required to use his income (if any) to qualify. The only mandatory individual factor required is credit – as the industry standard requires use of the lowest middle FICO score of all applicants.

On the contrary, lenders will scrutinize down payments that are made by non-applicants, commonly parents or giftors. If Barbara had been Mike’s parent, for example, then the lender would almost certainly require at least 5% of the down payment sourced back to Mike’s individual funds. Actuarial tables show that default rates are consistently higher for borrowers who used a down payment that wasn’t theirs to begin with. But in this scenario, Barbara is clearly one of the applicants and it doesn’t matter that Mike is not sharing in the down payment.

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