How to Combine Two Family Incomes to Buy a House

How to Combine Two Family Incomes to Buy a House
Couple in front of a house with a "sold" sign.

Multiple Reasons for Buying Together

Unrelated families can obtain a mortgage to purchase a primary residence, such as a single-family dwelling big enough for both households or a duplex for separate housing. Two families might also pitch in to buy a second home, such as a vacation property to share throughout the year. Families can also invest in rental properties that they fix up and sell for a profit or rent to tenants. The property type and the borrowers' occupancy status affect mortgage qualifying and income requirements.

The More Income, the Merrier

You can increase your purchasing power by showing more income on your mortgage application. However, lenders compare your income to your debt load, therefore, multiple incomes don't necessarily guarantee more buying power if the borrowers carry too much debt. Lenders require healthy debt-to-income ratios, usually between 28 percent and 33 percent, for housing-related expenses, and 36 percent to 41 percent for housing and non-housing expenses. This ensures that each family can afford their share of the housing payment.

Proving Income and Calculating Debt

Income for all borrowers must be stable, verifiable and documented. All borrowers provide at least two years of income taxes, recent pay stubs or proof of year-to-date earnings and contact information the lender can use to verify employment stability, hours and pay rates. All borrowers need not have income to be on the loan application; however, their debts are still taken into account. For example, if two out of four applicants don't work or only work odd jobs and sporadically, the lender omits their income information, but includes their individual debts when calculating DTI.

Credit Concerns

In addition to combining the incomes of all borrowers and offsetting income with debt, lenders consider everyone's credit scores. Lenders make loans based on the weakest credit. For example, if three out of four borrowers have credit scores in the high 700 range and one borrower has a 620 score, lenders base eligibility and the mortgage interest rate on the 620 score. Depending on the income needed to qualify, the families may be better off leaving an applicant with poor credit off of the loan application to obtain better terms.

Buying a Multi-Unit Property

Families face tighter guidelines when buying two- to four-unit properties, also known as multifamily homes. The typical down payment for such properties is 20 percent if the families occupy the property and 25 percent down if they don't. That's because the loan carries a higher level of risk due to maintenance costs, possible vacancies and loss of rental income. Buyers of multifamily properties must also have more reserves -- usually six or 12 months of housing expenses. Certain federal, state and municipal housing programs can help families purchase multifamily properties for use as a primary residence. These loans sometimes work in conjunction with government-backed loans and may require lower down payments.