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 essentially allows you to split a loan with someone else.
Let’s go over the details to help you decide if a joint mortgage loan is a right choice for you.
What Is A Joint Mortgage Loan?
A joint mortgage is shared by multiple parties, typically a home buyer and their friend, partner, or family member. It allows two parties to pool their financial resources and potentially qualify for a bigger or better loan than they could have individually got.
A joint mortgage differs from joint ownership if you’ve heard that term used before. Unlike joint ownership, which sees two parties sharing the ownership of property equally, a joint mortgage has nothing to do with who actually owns the title or deed. With a joint mortgage, two parties are simply both responsible for the loan—even though one of them may not have their name on the actual title and doesn’t technically own the property.
How Joint Mortgage Loans Work
When you get a joint mortgage, you share responsibility for the loan with another person, commonly a parent, child, partner, or friend. 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 the same as if you were applying for a loan yourself; your lender will look at the borrower’s credit scores, income, debt, employment history, etc. All parties that will be on the loan have to submit their own application.
If you’re approved, both you and the other party involved will sign a promissory 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.
Be aware that if someone stops making their share of the payments, the lender can penalize and come after any of the borrowers for the money, since they are all equally responsible.
That said, make sure whoever you decide to share a joint mortgage with must be fully invested in repaying their share of the loan.
Credit Score: Whose Score Is Used On A Joint Mortgage?
When you get a joint mortgage, your lender will look at the credit history and credit scores of all applicants that will be on the loan. Since everyone’s credit will affect the loan you qualify for, it can be detrimental if you or the person you’re applying with has a poor credit score.
While some lenders will be more flexible in one borrower having bad credit, others will be less forgiving. If you or your partner’s credit score is making getting a joint mortgage difficult, remember that there are always other options. You may still qualify for joint ownership, which won’t put the borrower with poor credit’s name on the loan but will grant them legal ownership of the property alongside the other borrower(s) involved.
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. The only difference with a joint mortgage is that the qualifications of both you and the other borrower(s) will be examined rather than just those of one person, which can give an advantage to someone that might get a joint mortgage with a partner that has better credit or significantly higher income.
A Joint Mortgage Doesn’t Mean Joint Ownership
As mentioned before, just because both parties are on a loan doesn’t mean they own equal shares of the property. Unless they are joint tenants/have full joint ownership, it’s likely that only one borrower in a joint mortgage has their name on the actual title or deed.
How to Get out of a Joint Mortgage
If you get into a joint mortgage that, for any reason, you’re no longer eager to be a part of at any point, it is possible to get out of it. Escaping the legal responsibilities of a joint mortgage typically requires a refinance to remove you or the other borrower(s) from the loan.
Here are a few of your options, should you find yourself in this position.
Get Into Agreement
If you want out of a joint mortgage, the first step you should take is to have an honest talk about the situation with your co-borrower. Since this person is likely family or a friend, it can be difficult, but if the other party understands your intentions and reasoning for dropping out of the loan, they may be more willing to consider refinancing and removing your name. If you all can’t agree to refinance, you likely won’t be able to get out of the loan, so it’s a good idea to approach the issue willing to talk things through.
Make sure to consider the costs to refinance before bringing it to your co-borrower so you can both be informed about what it would cost to remove you from the loan and leave the rest to the other party.
Buy-Out Your Partner
If your partner or co-borrower wants out of a joint mortgage, it is possible to buy them out if all parties agree to it. This means you essentially give your partners their share of the equity via a cash-out refinance.
You will need to have some equity built in the home to pull this off successfully, but if it’s an option for you, it can be a way to remove other parties from the loan and refinance to sole ownership.
You’ll need to have your home appraised as well as determine the equity in the home that belongs to each partner. If you can all agree on a buyout price, you can refinance and become the sole owner of the mortgage. Keep in mind that you will also need to qualify individually for your lender’s requirements on the new loan, which can sometimes be difficult if you originally got the loan with multiple partners.
Sell the Home
If all parties agree, it’s also an option to just sell the home and move on. Rather than deal with refinancing or having to buy out a co-borrower, selling the home and going separate ways can relieve all parties of the responsibilities of the current joint mortgage loan.
If one or more of your co-borrowers is attached to the home, however, this option may not be workable for you.
The Bottom Line
Buying a home with a partner, friend, or family member can be very exciting. Getting a joint mortgage can make homeownership more affordable and more feasible for many people, which makes it a good option for many first-time home buyers. Since two or more people are equally responsible for making payments, however, there are some complications that come with a joint mortgage, particularly if you ever want to get out of it.