Is it a Red Flag to Not have all Owners on Loan?

Question

Hey all,

I have a property that I own as tenants in common with a few friends. I am the only person who lives at the property. It is classified as my primary residence. I am there basically to oversee the renovation and then I will move out.

Anyways we plan to get a second lien to find some of the renovation. My mortgage broker has told me that generally her second lien lenders do not allow non-occupant co-borrowers on the loan. Is it sketchy / any red flags to not have all owners on the loan?

Not sure if it matters but my US Bank 1st lien only has 2 of the owners (myself and 1 other) on it. This was done because the US Bank loan officer did not think it was necessary to have all 5 owners.

Just want to make sure I am not making any big mistakes here. My attorney today told me that this is a huge red flag and is extremely uncommon, but according to my mortgage brokers and US Bank loan officer, and own personal experience, it is extremely common. My attorney could just be wrong.

Would appreciate any insight the community has. Thanks!

Seth McGathey · Answer

It really comes down to how much do you trust the partners and what do you have in writing. I own one property with a old friend and business partner where I am not on the loan but own 50%. We did this so that he could get 5% down. Then we quit claimed me onto title. He is taking a risk because I could just walk away from the property and it would have no affect on me financially besides not having that asset anymore. He will be responsible for the loan though. In the other hand, I fronted the majority of the cash for the down payment. So he started with less risk. But we have known each other literally our entire lives and our families knew each other before that. So I trust him more than I would trust most people.

So just make sure you trust them and their is proof of how much of the property everyone is responsible for and how you handle expenses/the loan if anything goes wrong,

Franklin Marquette · Answer

Thanks! We aren't doing a TIC because it may disqualify us from 1031 but the ownership % will all be clearly listed on the deed. Any issues anyone can see with that?

Is it a Red Flag to Not have all Owners on Loan?

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