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You’re ready to buy a house, but you’re buying it with other people. That begs several questions: How many owners can a home have? How many people can be on a mortgage? Does every co-owner have to be a co-borrower?
There are several reasons why two or more people may want to purchase a home and be on the mortgage together. The most common case is that of a married (or cohabiting) couple, of course. But non-espoused people may also want to purchase it collectively. They could be related — siblings or parents and children setting up a multi-generational home — or just friends.
How many people can be on a mortgage?
There’s no legal limit as to how many people can be on a home loan, but getting a bank or mortgage lender to accept a home loan with multiple borrowers might be challenging. As a rule of thumb, no more than four borrowers are typically allowed on a conventional mortgage loan.
Conventional loans (which comprise most mortgages in the U.S.) are backed by the government-sponsored agencies Fannie Mae and Freddie Mac. Fannie Mae’s automatic “Desktop Underwriter” tool — which many financial institutions use to evaluate mortgage applications — 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 for financing instead.
When considering how many co-borrowers can be on a mortgage, four seems to be the magic number with many lenders. “Quicken Loans allows a maximum of four clients on any single loan transaction,” says Bill Banfield, chief risk officer for Rocket Mortgage (which owns Quicken). “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.”
Another thing to bear in mind: Most lenders usually require that all borrowers on the same loan submit their credit scores, income information and employment history for assessment during the underwriting process. Keep this in mind as you consider whom to add to the loan.
Benefits and drawbacks of including more than one name on a home loan
There are several different scenarios in which multiple people might want to purchase a home together and have a joint mortgage loan.
For instance, if you are married, it makes sense for you and your spouse to have both names on your loan. Or, if you are not married but have a life partner you live with, putting both names on the mortgage can feel right.
Another example is if you purchase a home with an investor partner: You will live in the house as your primary residence, your co-investor will not. But they will share in homeownership costs as well as proceeds from the future sale of the home.
Benefits of having multiple names
Advantages of having more than one name on a mortgage include:
- Applying with a co-borrower might make it easier to qualify for a loan because two incomes are better than one. If the co-borrower has good credit and a steady job, for example, this can help strengthen your application and improve your chances of getting approved. It might be easier to make a larger down payment with more than one borrower, too.
- 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).
- Having multiple names on the mortgage loan allows you to share costs, making home ownership more affordable.
Risks of having multiple names
Likewise, drawbacks to having two or more names on a mortgage include:
- 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 to foreclosure.
- It can be challenging to agree on homeownership issues, including who is responsible for maintenance and repairs and what to do if one person wants to sell the home but the other does not.
Tips for buying a home with multiple people
Before you agree to a mortgage with other people, protect yourself and consult with a business or real estate lawyer who can explain your options and outline the risks you face.
Obtain legal advice
“Contact an attorney to work out what type of entity is going to take title to the property,” says Jim Finn, an attorney at Gregg, Hunt, Ahern & Embry in Cambridge, Massachusetts. “This could be an LLC, a corporation, a trust or a partnership. Once you decide what would work best for your particular situation, then the attorney can draft the legal documents.”
Form an LLC
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 if 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,” says Finn. “They would have an operating agreement which would spell out how they’re going to split proceeds and share costs.”
Check with lenders before LLC formation
Before you form an LLC, however, make sure your lender is open to giving joint mortgages to LLCs or similar entities. “Some lenders do not want trusts or LLCs to be on the mortgage; they want individuals,” says Finn.
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 re-qualify 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.
Know what you’re getting into before committing to a mortgage loan with multiple borrowers and names listed. Remember that there are pros and cons to having two or more names on a mortgage. Even though this arrangement may make sense for you today, it could lead to complications down the road — especially when important decisions about the property need to be made, including possibly selling it.
For best results, discuss with a Realtor or real estate broker the ins and outs of buying a home with someone. And definitely consult a real estate attorney prior to entering into a purchasing pact with another buyer/borrower.
Additional reporting by Erik J. Martin