What you need to know before taking out a joint mortgage



Ridofranz / Getty Images / iStockphoto

Ridofranz / Getty Images / iStockphoto

According to the National Association of Realtors, published by Experian, married couples made up only 61% of home buyers. But you don’t have to be married or even a couple to buy a house with someone else. And with home prices skyrocketing, buying a home with a roommate, trusted friend, or partner may be the only way you can. afford the home you want

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But buying a home with someone you’re not married to means you have to consider factors that married couples don’t.

Before applying for a joint mortgage

Before applying for a joint mortgage, you will want to evaluate both people’s credit histories, credit ratings, existing debt and income. According to Zillow, most lenders are looking for a debt-to-income ratio of no more than 36%, although this number can vary depending on the type of loan. The debt-to-income ratio takes into account your home payment and minimum monthly debt payments, including car loans, student loans, and credit card debt, compared to your monthly gross income.

To qualify for a joint mortgage, both borrowers must also have an acceptable credit rating. This means that the minimum FICO score is at least 620 for regular mortgages and 580 for most FHA or VA loans, according to QuickenLoans.com. If the credit rating of one side is excellent and the other meets the minimum requirements, you can pay a higher mortgage interest rate.

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Before agreeing to a joint mortgage

Let’s say you’ve been approved at your desired interest rate, you’ve determined how much each of you will contribute to your down payment, and you’ve found your dream home. There are a few more steps to take before both of you feel comfortable with the location.

Ask a lawyer to draw up a legal agreement that outlines the responsibilities of each person in the transaction, including how you will split household expenses, including mortgage payments, and what happens if one person no longer wants to live in the home. You will also want to determine what happens if one person loses their job or cannot contribute to mortgage payments or household expenses. And since only one person in a joint mortgage can receive a mortgage interest tax deduction from detailed tax returns, you should decide in advance which of you will claim it.

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You also need to decide whose name will be in the title.

The Experian blog notes that there are three ways home buyers can hold onto their title. One person can be solely owned, which means that the other party can contribute to the mortgage, but does not have any title to the house. A joint inheritance lease means that each of you owns equal shares in the house, and if one person dies, the house automatically goes to the surviving copyright holder. Finally, shared tenants can split the property based on percentage. One person can sell his share without informing the other copyright holder, and they can bequeath their share of the property to their heirs.

What options are available to you depends in part on your lender and the type of your loan.

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Consider the risks of a joint mortgage

Joint mortgages can carry significant risks. If one person wants to withdraw a loan from another, they will need refinancing, which can mean additional costs of closing and evaluating the home.

If one borrower refuses to pay their share and the other party cannot make up the difference, both people will see their credit ratings drop and could lose their home to foreclosures.

With careful communication and the right legal paperwork, a joint mortgage can be a good way for an unmarried couple, or even close friends or family members, to take advantage of the benefits of home ownership. But enter into such a contract with caution, because it may be easier to continue renting while you look for ways to accumulate wealth without buying a home.

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This article first appeared on GOBankingRates.com: What you need to know before taking out a joint mortgage


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