A Guide To Joint Mortgages
Everything You Need To Know About A Joint Mortgage
When attempting to get a mortgage to finance a home, all the options can be overwhelming. A joint mortgage can be a great option to consider, especially for first-time home buyers, because it allows you to split a loan with someone else.
This article will provide an overview of how a joint mortgage works and address factors to think about when considering this home buying option.
What Is A Joint Mortgage Loan?
A joint mortgage loan is an agreement between two or more people to share the responsibility for repaying a loan. This type of loan often involves co-borrowers, such as spouses, friends, and family members. The loan amount is typically split evenly amongst all parties involved to allow them to pool their financial resources and potentially qualify for a bigger or better loan than they could have on their own.
Unlike joint ownership, which sees two parties sharing the legal ownership of a property equally, a joint mortgage has nothing to do with whose name is on the deed. When taking out a joint mortgage, each party is responsible for the full amount of the loan and all associated fees. The co-borrowers are also jointly liable for any late payments or defaults on the loan, meaning that each party’s credit score can be affected if one fails to make a payment.
How Joint Mortgage Loans Work
When you buy a house with a joint mortgage, you share responsibility for the loan with another person. While joint mortgage applicants are often married, you don't have to be married to the other party on your loan – you just both have to qualify and be over the age of 18. The factors used to decide whether you qualify for the loan are pretty much the same as if you were applying yourself; your lender will look at borrower credit scores, income, debt, employment history, etc. All parties that will be on the loan have to submit their own mortgage application.
If you're approved, both you and the other party involved will sign a pro missionary note. You will both be equally responsible for making payments on the loan, though one of you can make the payments on behalf of the pair or group.
Whose Credit Score Is Used On A Joint Mortgage?
When taking out a joint mortgage, both parties’ credit scores will be taken into consideration by the lender. Generally, the lender will use a combination of both borrower’s scores to determine eligibility for the loan. This means that if one party has a lower score than the other, it could potentially affect their chances of getting approved.
Joint Mortgage Requirements
To qualify for a joint mortgage, you'll need to meet the same criteria as any other borrower would for a loan, which includes a decent credit score and minimal debt, among other things.
For most conventional loans, you'll want to meet the following criteria:
A good credit score, preferably of at least 620
Fairly low debt-to-income ratio (DTI), ideally lower than 50%
You may have to make a down payment of 3% – 15%, though this can be higher or lower depending on the loan and lender
Your loan amount will need to abide by the mortgage loan limits set by the Federal Housing Finance Agency (FHFA)
Pros and Cons Of A Joint Mortgage Loan
The main pro of a joint mortgage is that it enables more people to pool their resources and qualify for a loan they may not have been able to get on their own. Additionally, having two incomes can make it easier to afford larger payments on the loan and even reduce your interest rate. With multiple borrowers also come multiple sources of income, which can make it easier to qualify for a larger loan.
The main con of a joint mortgage is the potential for one person to carry the financial burden if the other party fails to make payments. With both parties being jointly liable on the loan, any late payments or defaults will affect both borrowers’ credit scores and may require additional payments from each individual.
Additionally, a joint mortgage can complicate the process of refinancing or selling the property in the future. As both parties are liable for the loan, any changes made to it need approval from both parties.
When Is A Joint Mortgage A Good Idea?
A joint mortgage is usually a good idea if two people are planning on buying a home together and they both have good credit and income that can be used as collateral. Additionally, this type of loan can be beneficial for those looking to purchase a more expensive home or who are self-employed and may have difficulty qualifying for a loan on their own.
How To Get Out Of A Joint Mortgage
Getting out of a joint mortgage can be a difficult and complicated process. Depending on the type of loan, there may be different options available for getting out of the loan. If both parties involved in the mortgage are still in agreement about getting out, it is important to make sure that all documents related to the loan are properly processed. Additionally, all parties should have their own lawyer and financial advisor review the process to make sure that everything is done correctly.
In cases where one party wants out of the mortgage but the other does not, it is important to look into refinancing options or reaching an agreement on a payment plan. Both parties should consult with their legal and financial advisors on the best way to proceed.
Conclusion
In conclusion, a joint mortgage can be a great way for two or more people to purchase a home together and pool their resources in order to qualify for a larger loan than they could on their own. However, it’s important to consider all the risks before taking out this type of loan and make sure both parties understand their individual responsibilities and are prepared to handle any issues that may arise relating to a payment.