Joint Mortgage: A Way To Buy A Home With A Loved One
Sidney Richardson8-minute read
November 19, 2021
When attempting to get a mortgage to finance a home, all the options can be overwhelming. A joint mortgage can be a great option to consider, especially for first-time home buyers, because it essentially allows you to split a loan with someone else.
Let’s go over the details to help decide if a joint mortgage loan is the right choice for you.
What Is A Joint Mortgage Loan?
A joint mortgage is shared by multiple parties, typically a home buyer and their friend, partner or family member. It allows two parties to pool their financial resources and potentially qualify for a bigger or better loan than they could have individually obtained.
A joint mortgage is different from joint ownership, if you’ve heard that term used before. Unlike joint ownership, which sees two parties sharing the ownership of a property equally, a joint mortgage has nothing to do with who actually owns the title or deed. With a joint mortgage, two parties are simply both responsible for the loan – even though one of them may not have their name on the actual title and doesn’t technically own the property.
How Joint Mortgage Loans Work
When you get a joint mortgage, you share responsibility for the loan with another person, commonly a parent, child, partner or friend. While joint mortgage applicants are often married, you don’t have to be married to the other party on your loan – you just both have to qualify and be over the age of 18. The factors used to decide whether you qualify for the loan are pretty much the same as if you were applying for a loan yourself; your lender will look at borrower credit scores, income, debt, employment history, etc. All parties that will be on the loan have to submit their own application.
If you’re approved, both you and the other party involved will sign a promissory note. You will both be equally responsible for making payments on the loan, though one of you can make the payments on behalf of the pair or group.
Be aware that if someone stops making their share of the payments, the lender can penalize and come after any of the borrowers for the money, since they are all equally responsible. That said, make sure whoever you decide to share a joint mortgage with is fully invested in repaying their share of the loan.
Credit Score: Whose Is Used On A Joint Mortgage?
When you get a joint mortgage, your lender will look at the credit history and credit scores of all applicants that will be on the loan. Since everyone’s credit will impact the loan you qualify for, it can be detrimental if you or the person you’re applying with has a poor credit score.
While some lenders will be more flexible about one borrower having bad credit, others will be less forgiving. If you or your partner’s credit score is making getting a joint mortgage difficult, remember that there are always other options. You may still be able to qualify for joint ownership, which won’t put the borrower with poor credit’s name on the loan, but will grant them legal ownership of the property alongside the other borrower(s) involved.
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Joint Mortgage Requirements
To qualify for a joint mortgage, you’ll need to meet the same criteria as any other borrower would for a loan, which include a decent credit score and minimal debt, among other things. The only difference with a joint mortgage is that the qualifications of both you and the other borrower(s) will be examined rather than just those of one person, which can give an advantage to someone that might be getting a joint mortgage with a partner that has better credit or significantly higher income.
For most conventional loans, you’ll want to meet the following criteria:
- A good credit score, preferably of at least 620
- Fairly low debt-to-income ratio (DTI), typically lower than 50%
- You may have to make a down payment of 3% – 15%, though this can be higher or lower depending on the loan
- Your loan amount will need to fall between the loan limits set by Fannie Mae and Freddie Mac. (You can find this year’s loan limits on the Federal Housing Finance Agency’s website.)
Pros Of A Joint Mortgage Loan
So, why would you want to get a joint mortgage loan over a loan with just your name on it? Here are a few of the benefits that come along with getting a mortgage with a buddy.
Better Interest Rate
It’s sometimes possible to qualify for a better interest rate with a joint mortgage loan than you would be able to get on your own. Since both you and your co-borrower’s credit history and financials are looked at together, you may be able to benefit if they have a better credit score or financial history.
More Housing Options
With a joint mortgage, you also get the chance to pool your income with another person’s. This can potentially give you the opportunity to pursue homes that would otherwise be out of your individual price range, not to mention you’ll likely be able to qualify for a larger loan.
As with most mortgage loans, you can typically deduct joint mortgage interest – and some other fees – when filing taxes. Typically, the person who actually paid the interest (and property taxes) is the one entitled to deduct the expenses on their report. If both you and spouse or co-borrower paid a share of the interest or taxes, you will want to attach an explanation of that and how much you each paid to your return.
Cons Of A Joint Mortgage Loan
While pooling your resources with friends, family or a partner can open doors for you when trying to get a mortgage, this can create complications, too. Here are a few of the downsides of deciding to get a joint mortgage loan.
Full Responsibility For Mortgage Payment
Remember, if the other borrower on your loan can’t afford their half of the payment, you will be responsible for the entire mortgage payment – and your credit will be impacted by their inability or refusal to pay. Similarly, if your co-borrower passes away, the responsibility for the entire loan falls to you.
With that in mind, remember that just because you can afford a more expensive home with the help of a co-borrower doesn’t mean you should always go for it. Before agreeing to any loan, you should always research how much house you can afford and discuss all possible outcomes with your co-applicant(s) in advance.
Co-Mortgagee Can Sell
The legal owner of a property can force a sale, even if the other party doesn’t entirely agree, if their name is the one on the title or deed. Since a joint mortgage only means two or more parties are responsible for the loan, one person from the pair or group can still legally hold ownership of the property themselves – and sell it, if the court agrees to their order of sale.
A Joint Mortgage Doesn’t Mean Joint Ownership
As mentioned before, just because both parties are on a loan doesn’t mean they own equal shares of the property. Unless they are joint tenants/have full joint ownership, it’s likely that only one of the borrowers in a joint mortgage has their name on the actual title or deed.
How To Get Out Of A Joint Mortgage
If you get into a joint mortgage that, for any reason, you’re no longer eager to be a part of at any point, it is possible to get out of it. Escaping the legal responsibilities of a joint mortgage typically requires a refinance to remove you or the other borrower(s) from the loan.
Here are a few of your options, should you find yourself in this position.
Get Into Agreement
If you want out of a joint mortgage, the first step you should take is to have an honest talk about the situation with your co-borrower. Since this person is likely family or a friend, it can be difficult, but if the other party understands your intentions and reasoning for dropping out of the loan, they may be more willing to consider refinancing and removing your name. If you all can’t agree to refinance, you likely won’t be able to get out of the loan, so it’s a good idea to approach the issue willing to talk things through.
Make sure to consider the costs to refinance before bringing it to your co-borrower so you can both be informed about what it would cost to remove you from the loan and leave the rest to the other party.
Buy Out Your Partner
If your partner or co-borrower wants out of a joint mortgage, it is possible to buy them out if all parties agree to it. This means you essentially give your partners their share of the equity via a cash-out refinance.
You will need to have some equity built in the home to pull this off successfully, but if it’s an option for you, it can be a way to remove other parties from the loan and refinance to sole ownership.
You’ll need to have your home appraised as well as determine the equity in the home that belongs to each partner. If you can all agree on a buyout price, you can proceed to refinance and become the sole owner of the mortgage. Keep in mind that you will also need to qualify individually for your lender’s requirements on the new loan, which can sometimes be difficult if you originally got the loan with multiple partners.
Sell The Home
If all parties are in agreement, it’s also an option to just sell the home and move on. Rather than deal with refinancing or having to buy out a co-borrower, selling the home and going separate ways can relieve all parties of the responsibilities of the current joint mortgage loan.
If one or more of your co-borrowers is attached to the home, however, this option may not be feasible for you.
Can Three People Be On A Mortgage?
There is no legal limit to how many people can be on a mortgage, but your lender may have restrictions in place. Remember that everyone on the loan also has to be able to qualify for it to be approved, and some lenders may see a big group of names as a potential risk.
Even if multiple people aren’t on a loan, keep in mind multiple parties can still own a property through joint tenancy or tenancy in common.
Can A Joint Mortgage Be Transferred To One Person?
A mortgage can technically be transferred to one person via a refinance. For this to happen, you will either need to refinance to a sole ownership loan or, if your partner will not agree to it, a cash-out refinance that will give them their equity in exchange for the title of the house.
Can An Unmarried Couple Buy A House Together?
Yes, an unmarried couple can buy a house together. You don’t have to be married to another person to buy a house with them or even to get a joint mortgage. Before agreeing to the loan, however, you may want to research some of the factors to consider when buying a home as an unmarried couple to make sure you’re getting the best deal when applying individually or for a joint mortgage.
The Bottom Line
Buying a home with a partner, friend or family member can be very exciting. Getting a joint mortgage can make homeownership more affordable and more feasible for many people, which makes it a good option for many first-time home buyers. Since two or more people are equally responsible for making payments, however, there are some complications that come with a joint mortgage, particularly if you ever want to get out of it.
If you’re looking to buy a home, with or without another party, check out our guide to getting the best mortgage rate.
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