If you are concerned that you may not be eligible for a mortgage (or cannot afford one), you might consider teaming up with one or more other parties to obtain a joint mortgage. Here you will learn what is involved with a joint mortgage, how to get one, what credit rating is used and what happens if the other party wants to refinance, sell, or pass away.
What is a joint mortgage?
A joint mortgage allows two or more parties to combine their assets and income to purchase a home.
“A joint mortgage typically involves two people, usually a spouse, joint partner, friend or family member, who pool their income and assets together to buy a home,” explains Ralph DiBugnara, president of New York-based Home Qualified. resource for buyers, sellers and realtors.
In the case of a typical mortgage, only your name is included in the application, so you are solely responsible for repaying the loan. In a joint mortgage, all parties involved are legally responsible for repaying the loan and meeting its terms.
However, a joint mortgage does not necessarily mean joint ownership; rather, ownership refers to names on houses title… The names of the individuals on the mortgage application and on the loan documents indicate the parties to the joint mortgage who are required to pay the debt. If a party participates in a joint mortgage but is not added to the title deed, that party may not own the property, but will still be responsible for paying the debt.
Is it better to get a joint mortgage?
“The main benefit of getting a joint mortgage is the ability to buy or own a larger home than you could buy on your own,” says DiBugnara. “When it comes to getting a mortgage, more income and / or assets equals an opportunity to borrow more money.”
The ability to combine salary and down payment not only increases your purchasing power“This makes it easier to pay off your mortgage every month, allowing you to have more money in your budget for future savings,” notes Mark Shepherd of Shepherd Financial Partners in Boston.
On the other hand, each party is equally responsible for paying off the mortgage.
“If one party stops contributing, it could put the other in an undesirable financial position,” says Melissa Gasparek, Inlanta Mortgage’s Relationship Resource Manager in Pewaukee, Wis..
“In addition, if a joint loan involves joint ownership – this means that all co-borrowers are listed in the title – one party can force the sale or refinancing of the property, even if the other party does not agree,” says Gasparek.
Plus, having your name on a joint mortgage can negatively impact your ability to get other loans, warns Chris Cohen, chief innovation officer at Kasasa, a financial and marketing services company that provides mortgage products in Austin, Texas.
It can also get complicated if one of the parties wants to get out of the joint mortgage agreement. This is why it is best for borrowers in a joint mortgage deal to “have strong, long-standing relationships with each other built on trust to avoid any potential future disputes,” Gasparek says.
Good candidates for a joint mortgage loan include those who share financial obligations beyond buying or owning a home, such as spouses, life partners, and people who plan to live together and share property (meaning all names are in the title).
“Parties who may have a shaky relationship or who do not align themselves in their financial interests when buying, owning and maintaining property are not good candidates,” Shepherd says.
Those with a low credit rating or degrading creditworthiness should also avoid this arrangement, as the mortgage lender may not prioritize the highest credit score among all co-mortgage loan participants when evaluating a loan application.
“If you can reasonably afford a full mortgage on your own, it makes sense to eliminate the complexity in the long run by avoiding a joint mortgage,” says Cohen.
Who can apply for a joint mortgage?
Two or more parties who agree to buy a home may be co-borrowers and enter into a joint mortgage agreement if all parties are over 18 years of age and the mortgage lender permits it.
“While it depends on the lender you choose, usually a maximum of four parties are allowed in a joint mortgage,” says Cohen.
DiBugnara notes that there are no specific eligibility requirements for who is allowed to apply for a joint mortgage if all co-borrowers agree to accept equal financial responsibility for repaying the debt.
The same underwriting criteria that apply to an individual mortgage also apply to a joint mortgage. The lender will consider your joint debt to income ratio (DTI), which represents your minimum debt payments per month divided by your total income and other criteria.
What credit rating is used for a joint mortgage?
In a joint mortgage situation, the mortgage lender will carefully consider the credit ratings of all co-borrowers.
“Some lenders are more flexible than others if one party has a lower credit rating than the other; they may prefer a higher credit rating when evaluating an application, ”says Shepherd. “But other lenders can raise the interest rate if a lower credit rating is worrisome enough.”
What are my rights to a joint mortgage?
When you enter into a joint mortgage agreement, it is very important to understand your responsibilities and rights.
“It’s important to take a very close look at the terms of the joint mortgage,” says Cohen. “If one co-borrower wants to sell and the other co-borrowers do not, they cannot sell the property without the permission of others. If no agreement is reached, the co-borrower can buy out the other parties at an agreed price, sell his share of the property to someone else, or settle the dispute in court and initiate the sale. “
If the co-borrower diesthe lender must be notified immediately to remove the deceased’s name from the joint mortgage and to update the terms to reflect this change.
“In some cases, where the joint mortgage does not have conditions that automatically transfer the loan to the surviving parties, the issue may need to be resolved in inheritance court, where the judge will determine the next steps for the co-borrowers and the lender. Cohen says. “If the co-borrower cannot afford to pay back the loan, the judge can demand refinancing of the loan or require survivors to sell the property.”
It is advisable to discuss these scenarios and strategies with your co-borrowers and possibly advocatebefore entering into a joint mortgage so that everyone knows what to expect should any of these circumstances arise.
How to apply for a joint mortgage
To apply for a joint mortgage, each co-borrower must apply for a loan, provide supporting documentation requested by the lender (including proof of income, savings, debt details and employment history), and sign all required disclosures and paperwork upon closing.
Be aware that the steps for setting up a joint mortgage loan will differ from lender to lender.
“When applying for a joint mortgage, you should expect the entire lending process to take longer,” says Cohen.