Mortgage Lending and Non-Borrower Household Income
Many homeowners in the U.S. share their house with relatives or friends. And, in many cases, these households are "extended-income households," or EIHs, in which additional, significant income is being earned by the co-resident(s). The population of doubled-up households in the U.S. is significant and growing. However, EIHs – which are more prevalent in low-income and minority populations – are at a relative disadvantage in mortgage lending because the non-borrower income traditionally is not evaluated. As a result, the applicant may face a debt-to-income ceiling that does not reflect their actual resources, limiting their access to mortgage credit.
Using household data from the American Housing Survey from 2005 to 2013, this edition of Housing Insights examines EIH borrower behavior over time to understand the characteristics of these households, how they form and break up, and whether the contributions of non-borrowers are stable enough to be considered as a factor in the borrower's ability to pay. The results suggest that lenders could qualify borrowers in EIHs for larger mortgage loans without incurring credit risk beyond that for otherwise comparable borrowers. In turn, this could potentially expand homeownership opportunities for underserved communities.