Home Buying Hack for Roommates

I have a great tip for you if you’re currently renting with a roommate and considering buying a home. The HomeReady program allows for you to use “boarder income” to qualify for your next home. If you’re thinking about buying a home where your roommate will continue to pay you rent, you may be able to use that rental income for qualifying for your new mortgage on a one-unit home.

In order to be able to use boarder income, the following is required:

  • Documentation to show the roommate has paid the borrower rental payments (cancelled checks paid to the borrower) for at least the last 9 months. Rental payments to a third party are not acceptable.
  • The roommate must have lived with the borrower for the last 12 months and will need to provide proof of having the same address (ex. drivers license, bills, bank statements, etc.).
  • The roommate will not be on the property title or mortgage.
  • Credit scores must be 620 or higher.
  • A home buyer class may be required.

I have used “boarder income” to help couples buy their first home. One of them had better credit and the funds for closing. The other happened to be paying the other their rent, which they had documentation for. A couple years later, they came to me for a refinance as mortgage rates were lower and they were able to record a deed and the new mortgage in both of their names.

The HomeReady program is also a wonderful program because it allows for lower down payment, improved interest rates and lower private mortgage insurance premiums. Freddie Mac’s Home Possible is very similar to Fannie Mae’s HomeReady program. Which program we utilize will depend on the nuances of the borrower’s application.

So… if you can meet the above guidelines, you may be able to use that rental income for qualifying! Or you can find a roommate (or your significant other, if you’re living together) and start documenting the rental payments for 9 months and have documentation that reflects where you’re both living.

Of course, all things being equal, the other possible option is that you and your roommate buy the home together. You may still qualify for programs like HomeReady or Home Possible (depending on incomes and the area the home is located in).

Bottom line, if you are thinking about buying a home, even if it’s more than a year away, I’m happy to talk with you to answer any questions and start creating a game plan. Buying a home with your best friend or new friend can help you buy your first home!

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