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May 30, 2023

Cooperative Home Buying Could Be What’s Next

With low housing inventory, high home prices and rising interest rates, cooperative home buying with joint tenancy might be the answer.

Low housing inventory, stubbornly high home prices and rising interest rates have been working together to put a chill on the real estate market. Even though builders started work on more homes in February, which could bring existing home prices down, it probably won’t impact first time home buyers.

The starter homes that these buyers need are not currently under construction by builders, as they can make more money by building larger homes. This is one of the factors that has kept Millennial buyers out of the market.

The other is affordability. With high student loan debt, many of these buyers have put off buying a home.

So, where can real estate agents turn to find new buyers and what kinds of homes will lenders be called upon to finance.

Sharing the cost of a new home

The answer may be cooperative home buying with joint tenancy. Our traditional model for homeownership is either a single person, a married couple, or an investor, who may be a person or a corporation. But there is no law that prevents unrelated persons from buying a home together.

Co-Buying has enjoyed a bit of a resurgence given the cooling market and the lingering affordability challenges facing younger consumers. Younger buyers are more likely to be amenable to the idea of sharing ownership and living with friends.

This could put larger homes, which we actively have in our current inventory, within financial reach of these home seekers.

A number of real estate companies are already targeting this group of potential first-time home buyers.

The lender’s perspective

Each lender will approach this potential market according to their own appetite for risk. It’s reasonable to assume that the rates and fees by these buyer groups might be higher than more traditional home buyers, which may be a welcome source of profit for lenders struggling with lower volumes and high costs.

Secondary marketing may be a challenge, which could make these deals a competitive advantage for depositories who service their own loans. Delinquency would be a concern, as always, as there would be more borrowers to contact and deal with in the case of default. But with delinquency currently so low, this is probably not a serious concern for most lenders.

The good news is that the technologies many of these lenders are using now to originate mortgages can handle these deals. MCP can accommodate up to 10 co-borrowers, helping the lender gather all the information required to originate high quality, fully compliant mortgages.

We’ll be watching this sector of the business to see if it expands in the second half of 2023. Some experts are already predicting that homes will be more affordable in 2024, which could make these arrangements less necessary for many new buyers. But that is not yet certain. If you are considering unconventional mortgage deals to shore up lost volume, visit with our experts to find out how MCP can make it easy to run your lending business your way.

By Joe Camerieri, EVP, Sales & Strategy at Mortgage Cadence 

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Mortgage Cadence: 
Alison Flaig 
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(919) 906-9738