If you are concerned that you may not qualify for a mortgage (or may not be able to afford it), you may consider teaming up with one or more other parties to secure a joint mortgage. Here, find out what a joint mortgage entails, how to benefit from it, what credit rating is used, and what happens if the other party wants to refinance or sell, or dies.
What is a joint mortgage?
A joint mortgage allows two or more parties to combine their assets and income to buy a home.
“A joint mortgage loan usually involves two people, usually spouses, joint partners, friends or family members, who pool their income and assets to buy a house,” says Ralph DiBugnara, president of Home Qualified , a digital company based in New York. resource for buyers, sellers and real estate agents.
With a typical mortgage, your name alone is listed on the application, making you solely responsible for repaying the loan. With 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, the property relates to the names on the house Title. The names of those on the mortgage application and loan documents indicate the joint mortgage parties required to repay the debt. If a party shares the joint mortgage, but is not added to title to the house, that party might not have any ownership interest in the property but would still be responsible for paying off the debt.
Is it better to take out a joint mortgage?
“The main benefit of getting a joint mortgage is the ability to buy or own more than one home than you could buy on your own,” says DiBugnara. “More income and / or assets equals the ability to borrow more money when it comes to getting a mortgage.”
Being able to combine your salary and your deposit not only increases your purchasing power“It makes it easier to pay off the mortgage owed each month, so you have more funds in your budget to save for future goals,” notes Mark Shepherd of Shepherd Financial Partners in Boston.
On the other hand, each party is also responsible for paying the mortgage.
“If one party stops contributing, it could put the other party in an undesirable financial position,” says Melissa Gasparek, production engagement resource manager for Inlanta Mortgage in Pewaukee, Wisconsin.
Also, if the joint loan involves joint ownership – meaning all co-borrowers are listed on the title – one party could force the sale or refinance of the property even though the other party is not. okay, ”Gasparek said.
Plus, having your name on a joint mortgage could negatively affect your ability to get other loans, warns Chris Cohen, Austin, Texas-based chief innovation officer for Kasasa, a financial services and development company. marketing that provides mortgage products.
It can also get complicated if one party wants to get out of the joint mortgage contract. This is why it is preferable that borrowers entering into a joint mortgage transaction “have a long and solid relationship with each other based on trust in order to avoid any potential dispute down the line,” explains Gasparek.
Good candidates for joint mortgages include those who share financial responsibilities beyond buying or owning a home, such as spouses, life partners, and people who plan to live together and live together. share ownership (which means all names are on the title).
“Parties who might have an insecure relationship or who are not aligned in their financial interests in buying, owning and maintaining property are not good candidates,” says Shepherd.
Those with a low credit score or derogatory credit should also avoid this arrangement, as the mortgage lender may not favor the highest credit score of all the joint mortgage parties involved when assessing the loan application. .
“If you can reasonably afford the entire mortgage on your own, it makes sense to remove the long-term complexity by avoiding a joint mortgage,” Cohen explains.
Who can apply for a joint mortgage?
Two or more parties who agree to buy a house may be co-borrowers and enter into a joint mortgage agreement, provided that all parties are over the age of 18 and the mortgage lender allows it.
“While it depends on which lender you choose, there is usually a maximum of four parties allowed on a joint mortgage,” says Cohen.
DiBugnara points out that there are no specific qualifying requirements as to who is allowed to apply for a joint mortgage if all co-borrowers agree to accept equal financial responsibility for debt repayment.
The same underwriting criteria that apply to individual mortgages also apply to joint mortgages. The lender will consider your spouse debt-to-income ratio (DTI), which is your minimum monthly debt payments divided by your total income, plus other criteria.
What credit score is used on a joint mortgage?
In a joint mortgage situation, the mortgage lender will carefully review the credit scores of all co-borrowers.
“Some lenders are more flexible than others if one party’s credit rating is lower than the other; they might favor the highest credit score in their assessment of the application, ”says Shepherd. “But other lenders may increase the interest rate if there is enough concern about the lower credit rating.”
What are my rights on a joint mortgage?
Understanding your obligations and rights is essential when entering into a joint mortgage agreement.
“It’s important to take a very close look at the terms of your joint mortgage,” says Cohen. “If a co-borrower wants to sell when the other co-borrowers don’t, they can’t sell the property without the permission of the others. If a deal isn’t reached, the co-borrower can buy out the other parties at an agreed price, sell their stake to someone else, or settle the case and force a sale.
If a co-borrower die, the lender will need to be notified immediately in order to remove the deceased’s name from the joint mortgage and update the terms to reflect the change.
“In some cases where the joint mortgage does not have terms that automatically transfer the loan to the surviving parties, the issue may need to be resolved in probate court where a judge will determine next steps for the co-borrowers and the lender. “Says Cohen.” If the co-borrower cannot afford to repay the loan, the judge can ask for a refinancing of the loan or ask the survivors to sell the property.
It is wise to discuss these scenarios and strategies with your co-borrowers, and perhaps a lawyer, before taking out a joint mortgage so that everyone knows what to expect if any of these circumstances occur.
How to Apply for a Joint Mortgage
To apply for a joint mortgage loan, each co-borrower must submit a loan application, provide the supporting documents requested by the lender (including proof of income, savings, debt details and employment history) and sign all disclosures and documents necessary for closing.
Keep in mind that the steps to getting a joint mortgage vary from lender to lender.
“With a joint mortgage application, expect the overall loan process to take longer,” says Cohen.