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If you’re concerned you might not qualify for (or be able to afford) a mortgage, you can consider teaming up with one or more other parties to get a joint mortgage. Here, learn what’s involved in a joint mortgage, how to qualify for one, which credit score is used and what happens if the other party wants to refinance or sell, or passes away.
What is a joint mortgage?
A joint mortgage allows two or more parties to combine their assets and income to purchase a home.
“A joint mortgage commonly involves two people, usually being spouses, joint partners, friends or family members, who pool their income and assets together to buy a home,” explains Ralph DiBugnara, president of New York City-based Home Qualified, a digital resource for buyers, sellers and Realtors.
With a typical mortgage, your name alone is put on the application, making you solely responsible for repaying the loan. With a joint mortgage, all parties involved are legally responsible for paying back the loan and following its terms.
A joint mortgage doesn’t necessarily mean joint ownership, however; rather, ownership pertains to the names on the home’s title. The names of those on the mortgage application and loan documents indicate the joint mortgage parties obligated to repay the debt. If a party shares in the joint mortgage, but isn’t added to the home’s title, that party might have no ownership claim to the property but would still be responsible for repaying the debt.
Joint mortgage requirements
Two or more parties who agree to buy a home can be co-borrowers and enter into a joint mortgage arrangement, as long as all parties are over the age of 18 and the mortgage lender permits it.
“While it depends on the lender you choose, there’s usually a maximum of four parties allowed on a joint mortgage,” Cohen says.
DiBugnara points out that there aren’t any specific qualification requirements as to who’s allowed to apply for a joint mortgage if all co-borrowers agree to accept equal financial responsibility for debt repayment.
The same underwriting criteria that applies to individual mortgages also applies to joint mortgages. The lender will consider your joint debt-to-income (DTI) ratio, which is your minimum debt payments per month divided by your total income, as well as other criteria.
What credit score is used on a joint mortgage?
In a joint mortgage situation, the mortgage lender will carefully consider the credit scores of all co-borrowers.
“Some lenders are more flexible than others if the credit score of one of the parties is lower than the other; they might favor the higher credit score in their evaluation of the application,” says Shepherd. “But other lenders may increase the interest rate if the lower credit score causes enough concern.”
What are my rights on a joint mortgage?
It’s crucial to understand your obligations and rights when you enter into a joint mortgage agreement.
“It’s important to review the terms of your joint mortgage very closely,” Cohen says. “If one co-borrower wants to sell while the other co-borrowers don’t, they can’t sell the property without permission from the others. If an agreement isn’t reached, the co-borrower can buy out the other parties at an agreed-upon price, sell their ownership stake to someone else or settle the matter in court and force a sale.”
If a co-borrower passes away, the lender will need to be notified immediately in order to remove the deceased person’s name from the joint mortgage and update the terms to reflect the change.
“In some cases where the joint mortgage doesn’t have terms that automatically pass the loan on to the surviving parties, the matter may need to be resolved in probate court where a judge will determine the next steps for the co-borrowers and the lender,” Cohen says. “If the co-borrower can’t afford to pay back the loan, the judge may request a loan refinance or have the surviving parties sell the property.”
It’s wise to discuss these scenarios and strategies with your co-borrowers, and possibly an attorney, before you enter into a joint mortgage so that everyone knows what to expect if any of these circumstances occur.
How to apply for a joint mortgage
To apply for a joint mortgage, each co-borrower needs to submit a loan application, provide supporting documentation requested by the lender (including proof of income, savings, debt details and employment history) and sign all necessary disclosures and paperwork at closing.
Keep in mind that the steps to originating a joint mortgage will vary from lender to lender.
“With a joint mortgage application, expect the overall lending process to take longer,” Cohen says.
Should you get a joint mortgage?
“The main benefit of getting a joint mortgage is the ability to purchase or own more of a home than you would be able to buy on your own,” DiBugnara says. “More income and/or assets equals the ability to borrow more money when it comes to obtaining a mortgage.”
Being able to combine your wages and down payment not only increases your purchasing power, “it makes it easier to pay the mortgage due each month, allowing you to have more funds in your budget to save for future goals,” notes Mark Shepherd of Shepherd Financial Partners in Boston.
On the other hand, each party is equally responsible for making the mortgage payment.
“If one party stops contributing, it could put the other party in an undesirable financial position,” says Melissa Gasparek, production engagement resource manager for Inlanta Mortgage in Pewaukee, Wisconsin.
“Also, if the joint loan involves joint ownership — meaning all co-borrowers are listed on the title — one party could force a sale or refinance of the property even if the other party doesn’t agree,” Gasparek says.
Additionally, having your name on a joint mortgage might negatively affect your ability to obtain other loans, cautions Chris Cohen, the Austin, Texas-based chief innovation officer for Kasasa, a fintech and marketing services company that provides mortgage products.
It can also get complicated if one party wants to get out of the joint mortgage agreement. That’s why it’s best for borrowers entering into a joint mortgage transaction to “have a solid, long-standing relationship with each other built on trust to avoid any potential disputes down the line,” Gasparek says.
Good candidates for joint mortgages include those who share financial responsibilities beyond the purchasing or owning of a home, such as spouses, life partners and people who plan to cohabitate together and share ownership (meaning all names are on the title).
“Parties who might have a shaky relationship or who aren’t aligned in their financial interests in purchasing, owning and maintaining the property aren’t good candidates,” says Shepherd.
Those with low credit scores or derogatory credit should also steer clear of this arrangement, as the mortgage lender might not favor the highest credit score of all joint mortgage parties involved when evaluating the loan application.
”If you can reasonably afford the full mortgage by yourself, it makes sense to eliminate complexity long-term by avoiding a joint mortgage,” Cohen says.