One of the most important things that a bank will look at when lending money to potential borrowers, is how the applicant can afford to pay the money back. Although plenty of people apply for mortgages as couples (usually in a serious relationship, or married), studies have shown that the vast majority of applicants are actually single and have very few responsibilities.
With the recent shift in the type of people buying homes, and with most banks around the world (including here in Australia) modifying their policies to help solo first time buyers, we can’t help but wonder what’s next on the agenda. We’ve seen trends change from predominantly couple-applications through to solo borrowers, but is there really a limit on the number of people that can apply for a home loan?
Too many cooks spoil the broth
That saying had to come from somewhere and although we’re sure that it applies to the kitchen, it also can refer to the mortgage application process. What’s the one thing that all banks will want to minimise the risk of? Facing a situation where a borrower can’t afford to repay what they owe, of course. With that in mind, wouldn’t it make sense if five or more people signed up to a mortgage and then split the cost of the repayments?
Well, as good an idea as this might sound many lenders actually avoid multiple borrowers – as there will always be a higher chance of at least one of them falling through on their agreement. We have seen instances where three people apply for a loan on a home; but these instances are very few and far between. Also, the relationship between these individuals will need to be proven, with most banks favouring those that are related (as it’s unlikely that all three will be married to one another).
That’s not to say that some lenders won’t consider several individuals applying for a mortgage – especially if they have the documentation and evidence to demonstrate that they will be investing equally and will be able to repay what they owe on an individual basis. This will sometimes happen when taking out a loan for business purposes, especially if a house is intended to be used for rental requirements, or to run a company from.
In the majority of cases we find that the fewer people there are to apply, the more confident a bank will be about approving a loan. If you can demonstrate that you’re married, or in a serious relationship with a child for example, then a bank will usually consider this leverage enough to approve your mortgage request. If you’re single, unmarried, or just want to apply on your own for any reason, then you might have an even higher chance of getting approved – mainly due to the fact that there won’t be as many external factors to have an impact on your borrowing potential.