For many newlyweds, the next big step after the wedding is buying a home together. It's one of the biggest financial decisions you'll make as a couple and doing it together can have a lot of benefits. If you choose to buy a home through a joint mortgage, your combined income may help you secure a larger loan at a better rate.
But there are potential downsides as well. Along with combining your income, a joint mortgage also combines your debt. It also looks at both of your credit scores. That could be a good thing, or it may end up impacting your ability to get the loan you want. It's important to know what a joint mortgage is, how it differs from joint ownership and the pros and cons.
What is a joint mortgage?
A joint mortgage is a loan that you take out with another person. That other person is often a spouse or partner, but it could also be a sibling, parent, friend or business partner. When you apply for a mortgage, lenders will look at each applicant's income, debts and credit scores to determine your eligibility for the loan.
If you both have a good credit score and a healthy debt-to-income ratio, it could help you get a better loan. However, if one of the applicants has a poor credit history or a large amount of debt, you may not be able to get a loan.
The difference between a joint mortgage and a single applicant mortgage
The biggest difference between a joint mortgage and a single applicant mortgage is how lenders look at credit scores, income and debt. With a joint application, they'll look at both of your credit scores. They’ll also combine both applicants' debt and income. For example, if you have $1,000 in student loans and your spouse owes $5,000 on a credit card, the lender will consider the application with a total debt of $6,000. They'll do the same for your income, taking both of your income amounts into account when determining how much you could afford.
With a single applicant loan, they'll only look at one person's information. This can work in your favor if the other applicant has a lower credit score or is carrying a lot of debt, but you won't be able to combine your income, either. Carefully weigh your options and talk to lenders about the best options to get the loan you want.
Can a joint mortgage be transferred to one person?
While no newlywed couple wants to consider it, it's important to know that you may be able to transfer a joint mortgage to one person in the future if needed. The easiest way of doing this is to buy out the other person's share of the property and take over the payments yourself. To do this, you'll need to pass affordability requirements on your own and refinance the home in your name.
If you can't pass eligibility requirements alone, you can take their name off of the mortgage and add someone else. This could be a parent or sibling, as long as they’re able to pass the affordability requirements along with you. If you refinance, you'll take out a new joint mortgage with the new names and continue with the payments.
If neither of these is an option, you can sell the property and split the profits between you.
Pros and cons of getting a joint mortgage
A joint mortgage is often a good idea for couples, but not always. Remember that a joint mortgage is a large financial investment that ties you to the other person's credit score, income and debt. You'll want to understand the pros and cons of a joint mortgage to determine if it's the right choice for you.
Potential benefits of getting a joint mortgage
- It may help you to qualify for a higher loan amount. By combining your incomes, you might qualify for a larger loan amount. This can help you get into a more expensive house or into a neighborhood that you love.
- You'll have shared responsibility for the mortgage payment. If one of you loses your job, there’s another person who’s responsible to help cover the expenses. This may put you at less risk of defaulting on the loan.
Downsides to consider before getting a joint mortgage
- If one person has a bad credit score or a lot of debt, it could affect your chances of loan approval. Make sure you check your credit scores before you apply to avoid surprises. Be honest with each other about your current debts, as well. If one person's credit score is particularly low or their debt especially high, it may be better to leave them off of the application.
- If someone misses a payment, it affects everyone. Legally, everyone on the mortgage is responsible for the payment. So if one person can't come up with their part of the payment, or if you miss a payment altogether, it will damage everyone's credit score. That could make it harder to refinance in the future or be approved for other loans.
- A joint mortgage doesn't necessarily mean joint ownership. A joint mortgage means both your names are on the loan. Joint ownership means both your names are on the deed. This could have legal implications if you separate or if one of you passes away, so make sure you know the difference.
5 steps to getting a joint mortgage
- Check both your credit scores. Because both your scores matter in a joint mortgage, you'll want to get your credit in shape before you apply. Checking your scores in advance can help you prepare for your loan application.
- Gather your paperwork. Both you and your spouse or partner will need to provide financial information like income, assets and debt. Gathering some of this ahead of time can cut down on the time it takes to apply later on. Get a full list of paperwork your lender will likely need.
- Research lenders and loan options. Different lenders offer different loan options. Do some research about lenders and loan to get an idea about what you want. Lending requirements vary by lender, too. Getting to know what they'll need can give you a head start on your application.
- Fill out loan applications. Once you've done your research, it's time to start applying. Choose a few lenders and fill out their mortgage applications. You can usually do this online, in person or over the phone. Depending on the scoring model used, you won't hurt your credit score by applying with a few different lenders in a short period of time, typically between 14-45 days.
- Review estimates and choose a loan. When you’re approved for a loan, you'll get a loan estimate from the lender. Review each loan estimate you get, and pay close attention to the interest rate and total cost of the loan. Ask any questions you may have, then choose the loan that's best for you.
It may not always be clear whether a joint mortgage is your best option as newlyweds. Taking your credit history, income and debt into account may leave you unsure about the best path for buying a home. Doing your research can help. If you have questions, speak to a Home Lending Advisor, and they can help you get started on your journey to homeownership.