Guide to joint mortgages
Quick insights
- A joint mortgage is a single home loan with multiple borrowers who share responsibility for repayment.
- To determine eligibility, mortgage lenders typically review each applicant’s credit score, employment, income and debt obligations.
- Exiting a joint mortgage later might involve refinancing, selling or a buyout agreement.
Purchasing a home with someone else can be a meaningful milestone. Maybe you’re planning to buy a home with a partner, spouse, family member or even a close friend. A joint mortgage allows two or more people to share responsibility for a home loan.
Many things are worth considering, from credit scores and loan approval to what happens if one person wants to move out or sell the home later. Let’s review joint loan requirements and financial considerations to help you decide if a joint mortgage is your path to homeownership.
What is a joint mortgage?
A joint mortgage is a loan that two or more people take out together to purchase a home. This is common among domestic partners, spouses and any situation when more than one person wants to buy property. Unlike applying alone, all borrowers’ gross income, debts and credit scores are considered during the joint mortgage preapproval and final approval process.
Why consider a joint mortgage
A joint mortgage can make purchasing a home more achievable by allowing borrowers to combine their financial profiles. When lenders review a home loan application, they usually consider the income and debts of everyone applying. This could help borrowers meet down payment or debt-to-income (DTI) requirements that might be harder to reach individually.
Sharing the mortgage may also make monthly housing costs more manageable if borrowers plan to split the payment. In some cases, applying together could make it easy to qualify for certain loan programs, such as an FHA loan. Federal Housing Administration (FHA) loan programs tend to offer lower down payment requirements compared to some conventional loan options.
Joint mortgage vs. joint ownership
When buying a home with another person, two terms might come up:
- Joint mortgage: Refers to the loan itself and who is responsible for repaying the mortgage. All borrowers listed on the home loan are usually responsible for making payments, regardless of how ownership of the property is structured.
- Joint ownership: Refers to who legally owns the property according to the title or deed. Ownership structures may vary, and in some cases, ownership percentages or rights to the property could differ depending on the arrangement.
You might find situations where all borrowers are on the mortgage and the deed. You may find another situation where all borrowers are on the mortgage, but only one is on the deed. For example, a parent co-signs the mortgage to help the loan get approved, but they may not be listed on the deed.
How does a joint mortgage work?
When applying for a joint mortgage, lenders consider the combined financial profile of all borrowers. This includes income from employment, credit scores of each applicant, existing liabilities and assets to evaluate your ability to maintain a mortgage. All borrowers are jointly responsible for repaying the loan. Missing payments, for example, affect all borrowers’ credit scores negatively.
Example
Imagine two first-time homebuyers:
- Borrower A earns $60,000 a year and has a credit score of 720.
- Borrower B earns $50,000 a year and has a credit score of 680.
Their combined income could allow them to qualify for a higher mortgage than they would if applying for a home loan individually. Depending on the down payment and loan type, combined finances may also avoid private mortgage insurance (PMI) or a mortgage insurance premium (MIP).
Whose credit score do lenders use?
Mortgage lenders typically pull credit reports for all borrowers. They might use the lowest middle credit score to determine the mortgage interest rate, loan eligibility, down payment requirements and mortgage insurance needs (PMI for conventional loans, MIP for FHA loans). Example:
- Borrower A: 740
- Borrower B: 665
Even though one borrower has excellent credit, the mortgage lender might base terms on the 665 credit score. The credit score used by the lender influences the loan terms they offer and the cost of the mortgage over time.
Joint mortgage requirements
Requirements vary by mortgage provider and loan type, but joint mortgage applicants generally need the following:
- Government-issued ID: Each borrower must provide a valid form of identification, such as a driver’s license or passport.
- Proof of income: Mortgage lenders review income documents like paystubs, W-2s or tax returns. These can confirm if all applicants can consistently afford monthly payments.
- Bank statements and savings for down payment: You will need to show recent bank statements to verify you have enough funds for the down payment, closing costs and cash reserves.
- Credit history and current debt obligations: Loan providers evaluate all borrowers’ credit reports, including payment history, credit scores and existing debt obligations, to assess overall risk.
- DTI of 50% or lower: Generally speaking, your combined monthly debt payments (including the new mortgage) should not exceed 50% of your gross monthly income. A lower DTI can improve your chances of mortgage approval and better rates.
- Minimum down payment of at least 3%: Some loan programs allow as little as 3% down, but it depends on the lender, your financial profile and property type. In some cases, you may be required to put down closer to 10%-15%. For conventional loans, 20% is usually required to avoid PMI.
- Loan-to-value ratio (LTV): The LTV ratio measures how much you are borrowing compared to the value of the home. Lenders have different LTV requirements when approving a mortgage loan after the property is appraised.
- Steady income and stable employment: Mortgage lenders look for consistent employment history (generally at least two years) to ensure reliable income from all borrowers.
- Loan amount within conforming limits: The mortgage must fall within limits set by the Federal Housing Finance Agency, which vary by location. Loans above these limits are considered jumbo loans and may have stricter requirements.
Some mortgage lenders allow multiple borrowers, up to four individuals, but the exact limit depends on loan program rules.
Pros and cons of a joint mortgage
A joint mortgage may benefit homebuyers who want to combine financial resources. Joint mortgages also introduce shared responsibilities and, depending on the situation, potential risks.
Pros:
- Higher purchasing power: Combined incomes might allow for a larger mortgage.
- Shared financial responsibility: Monthly payments may be split among borrowers.
- Loan program flexibility: Joint borrowers might qualify for conventional, FHA or VA loans that may be difficult to obtain individually.
Cons:
- Shared liability: All borrowers are responsible for full loan repayment.
- Credit risk: Missed payments could impact everyone’s credit score.
- Complex exits: Selling or refinancing the property may require negotiation or refinancing to remove one borrower.
How to get out of a joint mortgage
Life changes may lead to one borrower needing or wanting to get out of the mortgage. Some options include:
- Refinancing the mortgage: The remaining borrower refinances the property in their own name.
- Selling the property: All borrowers pay off the mortgage and divide proceeds.
- Buying out a borrower: One borrower purchases the other borrower’s share, often with a new home appraisal and refinancing.
- Loan assumption (less common): One borrower assumes responsibility for the home loan, depending on lender approval.
Legal advice or consultation with a mortgage professional may be helpful when considering exit strategies.
How to apply for a joint mortgage
Applying for a joint mortgage is much like getting an individual loan, except lenders evaluate the finances of everyone involved. Understanding the process early helps you prepare to gather documents, compare loans, and submit your joint mortgage application.
- Discuss financial expectations. Clarify budget, contributions toward the down payment, and who will handle monthly payments.
- Check credit and finances. Review credit scores, debts and income to understand qualification potential.
- Compare mortgage lenders and loan programs. Look at conventional, FHA or Veterans’ Affairs (VA) loans to see which suits your combined profile.
- Get preapproved. Mortgage preapproval may give you an idea of loan amount based on combined income and credit.
- Submit a full application. Provide required documents for all borrowers and move through mortgage underwriting, home appraisal and final approval.
In summary
A joint mortgage may make homeownership more attainable by combining income, credit scores and savings. Loan options like conventional loans, FHA loans or VA loans come with different requirements for a down payment, PMI or MIP. Clear discussions about responsibilities, future exit plans and financial expectations may help first-time homebuyers feel confident moving forward together.
FAQs
Can you add someone to a joint mortgage later?
Yes, but it’s not normally as straightforward as sending their contact information. Most lenders require you to refinance the home loan to include a new borrower. During this process, the new applicant must qualify based on their income, credit score and debt. Keep in mind that refinancing may change your interest rate, loan term and monthly mortgage payment.
What happens to a joint mortgage when someone dies?
What happens next depends on how the property is owned. If you hold the title as joint tenants with the right of survivorship, the surviving borrower typically takes full ownership of the home. If ownership is structured differently, such as tenants in common, the deceased person’s share may pass to their estate or a named beneficiary. Regardless of ownership, the mortgage itself still needs to be paid, and the surviving borrower or estate is responsible for keeping payments current.
Can a joint mortgage be transferred to one person?
Yes, a joint mortgage can be transferred to one person, but it’s not automatic. In most cases, transferring a joint mortgage to one person requires refinancing the home loan in that individual’s name. The remaining borrower must qualify on their own based on income, credit, DTI ratio and other key factors. Some loans may allow for a mortgage assumption, but this depends on the mortgage lender and loan type and isn’t always an option.
