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You’re ready to buy a house, but you’re buying it with other people. Can you all put your names on the mortgage? This question doesn’t have an easy answer — here’s what to consider.
How many names can be on a mortgage?
There’s no legal limit as to how many names can be on a single home loan, but getting a bank or mortgage lender to accept a loan with multiple borrowers might be challenging.
About 90 percent of mortgages in the U.S. are backed by the government via Fannie Mae, Freddie Mac and Ginnie Mae. Fannie Mae, in particular, supports an automatic underwriting tool called “Desktop Underwriter.” This is what most big banks use to approve or deny loans. Lenders plug in your information, which is then processed and analyzed by this tool, to get a determination of your eligibility.
According to Fannie Mae, Desktop Underwriter only supports four borrowers. If there are more than four people on the loan, the lender would have to manually underwrite the mortgage. Many big banks don’t do this, so your options would be slimmer, and you might need to go to a credit union or community bank instead.
“Quicken Loans allows a maximum of four clients on any single loan transaction,” says Bill Banfield, executive vice president of Capital Markets at Quicken Loans. “The exception to that rule is VA loans. National VA loan guidelines permit only the veteran and his or her spouse to be on the mortgage.”
Although Fannie Mae doesn’t limit the number of names on one note, it does require that all borrowers submit their credit scores, income information and employment history for assessment in the underwriting process. Keep this in mind as you consider who to add to the loan.
Reasons to include more than one name on a mortgage
There are a few reasons a borrower might want to include more than one name on a mortgage:
- Applying with a co-borrower might make it easier to qualify for a loan. If the co-borrower has good credit and steady income, for example, this can help strengthen your application and improve your chances of getting approved.
- Applying with a co-borrower allows you to put the co-borrower’s name on the title. This is important if you plan to jointly own the home. (Note there is also another way to add someone to the title if you want to avoid going through the underwriting process: a quitclaim deed after the closing).
Remember co-borrowers are both wholly responsible for loan payments. If one borrower stops paying their share of the loan, the other must continue to pay to avoid damaging their credit or losing the home.
How to protect yourself
Before you agree to a mortgage with other people, protect yourself and consult with a business or real estate attorney who can explain your options and outline the risks you face.
“Contact an attorney to work out what type of entity is going to take title to the property. This could be an LLC, a corporation, a trust or a partnership,” says Jim Finn, an attorney at Clark, Hunt, Ahern & Embry in Cambridge, Massachusetts. “Once you decide what would work best for your particular situation, then the attorney can draft the legal documents.”
If you’re going in on an investment property with a few friends or family members, forming an LLC can protect members from liability if there’s a dispute or lawsuit, or someone stops paying the mortgage or wants to sell the property.
“If it’s an investment, I would suggest they do an LLC because that’s going to give them insulation from personal liability,” Finn says. “They would have an operating agreement which would spell out how they’re going to split proceeds and share costs.”
Before you form an LLC, however, make sure your lender is open to giving mortgages to LLCs or similar entities, Finn says.
“Some lenders do not want trusts or LLCs to be on the mortgage; they want individuals,” Finn says.
How to remove a name from a mortgage
It’s possible to remove a name from a mortgage, but that doesn’t mean it’s easy. Most lenders won’t be excited to take someone’s name off the loan because it means there’s now one less person to pay the loan back.
If the lender is willing, though, you’ll likely have to requalify for the loan on your own. If you have an assumable loan, this process can be a little bit easier.
Another option is to refinance the mortgage without the co-borrower. Of course, you’ll need to qualify for a refinance, just like any other mortgage.
If you’re not tethered to the property, you can also try to sell the home. You’re then free to purchase another home without a co-borrower.