If you're buying a home, you may have considered taking the leap with a partner or a friend. A joint mortgage is a great option for people who want to combine assets and qualify for a mortgage together. Although the process may seem simple, there are a lot of things you should consider before you apply for a joint mortgage, even if you're a married couple. A mortgage is a big commitment, so you want to make sure you know what you're getting into before you sign on the dotted line.
What is a joint mortgage?
A joint mortgage is exactly what it sounds like: a mortgage agreement shared by two or more people. It's important to understand that a joint mortgage is different from joint ownership. While they both involve shared ownership of the home, the application process may be different.
Joint ownership means both parties own the home. This could mean they bought a home together, one person was added to the title after the home purchase or more than one party gained ownership of the home through a gift or inheritance. While joint ownership refers to the names on the title, a joint mortgage refers to the names on the application that will be responsible for the repayment of the loan.
Who can apply for a joint mortgage?
Almost anyone can apply for a joint mortgage. The most common reason people apply for joint mortgages is marriage. When two people enter a commitment, they often share finances. So it makes sense for both names to go on the home loan application. But you don't have to be married to apply for a joint mortgage. In most states, you just have to be 18 or older. Other situations where two or more people apply for a joint mortgage include:
- Parents and children. When young adults are starting out, they may not have the qualifications to purchase a home on their own. They might have saved enough to afford a home, but don't have their credit history established yet. In this case, parents or relatives put their names on the loan to assist.
- Unmarried couples. It's not uncommon for two people who aren't married to purchase a home together. While a mortgage may seem unachievable as individuals, couples may find it easier to combine finances and buy a home with a joint mortgage.
- Friends. Friends often rent together to save money, but buying could be a more financially-savvy option. A joint mortgage between friends could result in the same or lower monthly payments compared to renting, depending on the home they buy.
Why should you apply for a joint mortgage?
There are many reasons why a joint mortgage is a great option:
- Potentially qualifying for a higher mortgage amount. A joint mortgage looks at the income and assets of all parties on the mortgage application. In other words, if you and your partner apply for a home loan, the lender considers both incomes. The combination of incomes could increase your lending limit.
- Building credit. Homeownership is a big commitment. You shouldn't buy a home just to build your credit. But if you're buying for other reasons, improving your credit is a great bonus. This is especially true for applicants with little-to-no credit who apply with their parents or a partner with an extensive credit history.
What information is needed for a joint mortgage application?
Like any mortgage, lenders look at a variety of factors when determining if you qualify. In the case of a joint mortgage, there's more than one set of applicant information. For joint mortgages, the lender analyzes the information for all parties. This includes:
- Income and assets. One of the top reasons people apply for a joint mortgage is so they can show more than one income. Lenders will look at the income and assets for all parties.
- Credit scores. While a joint mortgage considers the credit scores for both parties, the terms will usually be based on the lowest credit rating. This means if one person has poor credit, it will negatively affect the mortgage rates and terms.
- Employment history. Your lender looks at the employment history for all applicants. For most people, this isn't a big deal. But if one applicant doesn't have a history in their current job field, is currently unemployed, between jobs or recently self-employed, it can make the application a bit harder.
- Debt-to-income. Your debt-to-income ratio helps lenders determine risk. For example, if you have a lot of debt compared to your income, lenders may worry you won't be able to pay back your loan. When two or more parties apply for a mortgage, the lender typically looks at income for all parties in relation to combined debt.
Factors to consider before you apply for a joint mortgage
A joint mortgage may seem like a great idea. And in many cases, it is. But there are a few things you should consider before you finance a home together and go into a mortgage agreement with someone else.
What happens if one party wants to sell?
Buying a home together may seem like a great idea now, but there may be times when one of you wants to sell and the other doesn't. Talk about these issues and come up with an agreement before you purchase a home together. If it's a point of contention, you need to think about whether you want to go into a binding agreement with this person.
You are responsible for mortgage payments
You may feel confident about your ability to maintain your portion of the mortgage, but what about your partner? Do you have enough money to cover the entire mortgage if the other party can no longer afford their share? If one party misses a monthly payment, both your credit scores will be impacted. Make sure you've communicated, budgeted and come up with a plan to ensure your mortgage payments will be made on time. The lender will hold each individual responsible for the entire debt, so if one or the other can not pay it, the remaining person will be expected to pay the full amount.
What happens if someone dies?
If one of the people on the mortgage dies, the other will continue to be responsible for paying the loan. Another issue is who will own the property. Depending on how you take title, the survivor could own the property in full or partial ownership could pass to the deceased party's heirs. Consult a lawyer before buying with another person to make sure you understand your options. A joint mortgage is a great option for anyone who wants to buy a home with a partner. Joint mortgages mean combined incomes, assets and responsibility. Contact a Home Lending Advisor to talk about whether a joint mortgage is the right option for you.