What is a Joint Mortgage?

A joint mortgage is when you take out a home loan with another person — it could be a spouse, family member or friend. This loan type can help you qualify for a larger loan amount with a great interest rate. But before you join your financial fate with someone else’s, it’s best to fully understand the pros and cons, as well as what happens if you need to part ways.

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Joint mortgages: What are they?

As the name implies, a joint mortgage is a home loan shared by multiple borrowers (known as co-borrowers). This is a common practice for married and unmarried couples purchasing a house together. With a joint mortgage, all co-borrowers will occupy the home and be liable for the debt.

A joint mortgage differs from a mortgage for individual borrowers, because it considers all of the borrowers’ financial situations together. The combined incomes of multiple borrowers usually means you can qualify for a mortgage with a higher balance than if you tried to apply on your own. Of course, it also means that your mortgage application could look less attractive if your spouse or significant other has less-than-stellar credit or owes a lot of debt.

A joint mortgage vs. joint ownership

A joint mortgage allows multiple people to share responsibility for paying back a single loan, but it doesn’t necessarily mean they will share legal ownership of the home. You can opt to share ownership, but that will involve additional actions beyond taking out the joint mortgage.

A joint mortgage is also different from having a cosigner, who, while also liable for the debt, generally doesn’t live in the home and may not be listed on the property title.

Who can apply for a joint mortgage?

While almost anyone can apply for a joint mortgage, married couples or people in committed relationships are the most common borrowers of joint mortgages. Young adults with weak credit history or not much income may opt to apply for a joint mortgage with their parents. Close friends or siblings also may choose a joint mortgage, because it could be more affordable than buying or renting alone.

In most cases, joint mortgages involve two borrowers. However, depending on your lender, you may be able to have more than two. It’s important to talk with your lender to find out what the limitations are for the number of borrowers on a joint mortgage.

Whose credit score is used on a joint mortgage?

When applying for a joint mortgage loan, the lender will evaluate the borrowers’ credit scores and histories. Since there are many credit-reporting companies and ways to calculate credit scores, a lender will often be dealing with multiple credit scores for each borrower. It’s common to use the median of any individual’s many credit scores as the “representative” score. From there, each lender can have its own way of combining you and your co-borrower’s scores for the purposes of qualifying for a loan, but the most common are:

• • The lowest median credit score counts. If your lender uses this method, the co-borrowers would fail to qualify for a joint mortgage even if only one of them had a median score that didn’t meet the minimum requirement.

• The average median credit score counts. With this method, your lender will take the median of your credit scores, as well as the median of your co-borrower’s scores, and average them to arrive at an “average median” credit score. If this number meets the minimum requirements, you can qualify for a loan.

The higher the credit score your lender uses for your joint mortgage application, the better interest rates you’ll typically receive on the loan.

Joint mortgage requirements

Lenders will look at several factors to ensure that you meet the minimum mortgage requirements for a joint mortgage.

Debt-to-income (DTI) ratio Ideally, they’ll want to see a debt-to-income (DTI) ratio of no more than 43%.

Credit score The minimum credit score will vary by loan type and lender, but won’t be lower than 620 for a conventional loan. If you can’t meet that high a bar, you may want to opt for an FHA loan, which will only require a 500 to 580 credit score (depending on your down payment amount).

Down payment Your minimum down payment will vary by loan program, but won’t go lower than 3% for a conventional loan or under 3.5% for an FHA loan. You may be able to qualify for a zero-down mortgage option if you have a military history or live in a rural area.

Loan-to-value (LTV) ratio This number compares how much you’re borrowing to the value of the property. It can affect several loan terms, including how much you’ll be allowed to borrow, your interest rate and your closing costs.

Pros and cons of borrowing a joint mortgage

Pros

  You could qualify for a bigger loan. Because both incomes are evaluated together in the loan application, you could be approved for a larger loan amount than if you were applying alone.

  Your DTI ratio may be lower when combined with your borrower’s. Lenders like a DTI ratio below 43%, and combining your income and debts with a co-borrower could lower your DTI ratio.

  Your credit score can be lifted by joining forces with a co-borrower with stronger credit. If credit is a major factor keeping you from qualifying for a mortgage alone, you can break through that barrier quickly by getting a joint mortgage. Rebuilding your credit on your own takes time, and you may not want to wait.

Cons

  Your credit decision may be based on the lowest credit score of the borrowers. If your co-borrower has a lower credit score than you, some lenders will use it when evaluating your loan application. This could lead to problems qualifying for a joint mortgage.

  Your DTI ratio may be higher when combined with your co-borrower’s. If your co-borrower has a lot of debt, this could increase your DTI above 43%, making it harder to get approved.

  You’re responsible for repaying the joint mortgage, even if one person moves out. If you sever the relationship with your co-borrower, or if you just want out — whatever the reason — both parties will still owe the debt.

  You could be forced to sell. If your co-borrower holds title to the home and you don’t, or if you share joint ownership, you could be forced to sell even if you don’t want to.

What happens if you want out?

In a divorce, it’s important to lay out who’s responsible for the joint mortgage and get it in writing. Although this won’t remove your liability for the debt unless you refinance the loan to remove your name, you’ll have legal recourse if your former spouse fails to pay the loan as agreed. The situation can be more difficult if you aren’t married, so you should try to come to an agreement with your co-borrower about how you’ll pay the joint home loan if you need to go your separate ways.

How to apply for a joint mortgage

The process of applying and qualifying for a joint mortgage contains several steps that all borrowers on a joint home loan will need to complete.

→  Collect your financial paperwork. You’ll need all the necessary paperwork showing your personal information, assets, employment information and income. This includes W-2 or 1099 forms, tax returns, bank statements and retirement and/or investment account statements. Be prepared to provide additional documentation if you’ve been divorced, pay or receive child support or have filed for bankruptcy.

→  Decide which joint mortgage loan is right for your needs. There are several mortgage programs, each with their own requirements and loan terms. It’s important to review each one to find the right joint mortgage for you and your co-borrower(s).

→  Choose a mortgage lender that best serves your needs. Today’s borrowers no longer have to rely on the bank up the street for a joint mortgage. Take the time to research several lenders and compare at least three to five loan offers to find the right fit with the best loan terms.

→  Fill out your joint mortgage application. Once you’ve done your research and have all your documentation ready, you and your co-borrower are ready to start the paperwork. Many lenders allow you to complete a mortgage application online or even over the phone. Of course, you can still go old-school and complete a mortgage application in-person with your lender.

What rights and responsibilities do I have as a joint mortgage borrower?

Applying for a joint mortgage comes with several legal rights and responsibilities, which should be considered by all borrowers before you sign on the dotted line.

• You’re responsible for paying the mortgage as agreed. When signing onto a joint mortgage, you’re committing to pay the loan as agreed. Your financial responsibility for paying the loan won’t end until the loan is paid in full.
• If a co-borrower dies, the remaining borrowers are still responsible for the mortgage. All borrowers listed on the mortgage are legally responsible for paying the mortgage. This obligation doesn’t end if one of the borrowers dies. However, if the deceased borrower has heirs, you may need to decide if they receive any share of ownership in the property. These decisions should ideally be made when signing a joint mortgage to avoid surprises later.
• If one borrower wants to sell, you may need to refinance or sell the home. If your co-borrower wants to sell the house but you don’t, you could agree to take over paying the mortgage yourself. However, if they want to be free of their obligation to pay the loan, you’ll need to refinance the loan in your own name. Alternatively, if you can’t qualify for a refinance, sell the home to pay off the loan.
• If a co-borrower wants their name removed from the loan, you must talk to your lender. Contact your lender and ask if they will remove the co-borrower from the mortgage. This is not likely, however, unless you have excellent credit and the financial means to repay the loan by yourself. Still, it never hurts to ask.

How to get out of a joint mortgage

If you no longer want a joint mortgage, there are several options for getting out of the joint home loan that could work for you. It’s even possible to remove someone’s name from a mortgage without refinancing or selling.

Refinance the mortgage in your co-borrower’s name

Refinancing a joint mortgage to remove one party means one borrower will need to apply for a new loan. The person retaining the home will need to meet the same mortgage requirements for a new mortgage that you had to meet for the joint home loan (this includes a minimum credit score, and the aforementioned DTI and LTV ratio requirements).

When you’ll need a cash-out refinance

In the event you both have equity in the home, the remaining borrower may need to apply for a cash-out refinance in order to pay out your equity share. A cash-out refinance has additional requirements that must be met for qualification.

See if you qualify for a mortgage assumption

Rather than applying for a mortgage refinance, a mortgage assumption means one borrower takes over responsibility for the monthly payments, interest rate and loan term for the existing joint mortgage — essentially, they keep paying the loan as originally agreed. However, it’s possible you could still be liable for the debt if the other party fails to pay. To be free of responsibility, you need the lender to agree to a novation, which removes you from the joint home loan free and clear.

Sell the home, and pay off the joint mortgage

The simplest way to get out of a joint mortgage is to sell the home and pay off the existing joint home loan. This way, the loan is paid in full, and both you and your co-borrower are free to move on.