What Is a Joint Mortgage Loan?
A joint mortgage is a home loan you take out with another person, like a spouse, family member or friend. Choosing a joint mortgage can help you qualify for a larger loan amount with a better interest rate. But before you join your financial fate with someone else’s, it’s best to fully understand the benefits, risks and what happens if you need to part ways.
- A joint mortgage is a home loan shared by multiple borrowers (known as co-borrowers). Co-borrowers aren’t necessarily co-owners.
- Joint mortgages boost your buying power, since combining incomes and credit scores can help you to qualify for a larger loan or better interest rate.
- To exit a joint mortgage, you’ll need to refinance, sell the home or have one person take over the loan completely.
Joint mortgages: What are they?
As the name implies, a joint mortgage is a home loan shared by multiple borrowers. It’s a common choice for married and unmarried couples purchasing a house together. With a joint mortgage, all co-borrowers share responsibility for the debt and will typically all live in the home.
A joint mortgage application considers all of the borrowers’ financial situations together. The combined incomes of multiple borrowers usually allows you to qualify for a mortgage with a higher balance than if you tried to apply on your own.
Having a co-borrower differs from having a cosigner — cosigners are liable for the debt, but typically don’t live in the home or hold title.
A joint mortgage allows multiple people to share responsibility for a single loan without necessarily sharing legal ownership of the home. Legal ownership is also known as “title.”
While most co-borrowers plan to live in the property together as their primary residence, this isn’t always required. You can share responsibility for the loan and give both people title to the property, even if one person doesn’t occupy the home, as long as your lender allows that arrangement.
Who can apply for a joint mortgage?
While almost anyone can apply for a joint mortgage, common scenarios include:
- Married couples or people in committed relationships
- Young adults with weak credit history or not much income who opt to apply for a joint mortgage with their parents
- Close friends or siblings who want 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. Talk with your lender to find out their limitations for the number of borrowers on a joint mortgage.
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Whose credit score is used on a joint mortgage?
When applying for a joint mortgage loan, the lender will consider the co-borrowers’ credit scores both individually and collectively. Lenders’ approaches can vary, but here’s how it typically works:
Step 1: Establish a score for each co-borrower individually
Since there are many credit-reporting companies and ways to calculate credit scores, a lender will often have multiple credit scores for each borrower. It’s common to use the median of any individual’s many credit scores as the “representative” score.
Step 2: Combine both co-borrowers’ scores
From there, each lender has its own way of combining two 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 your representative score (the median of your credit scores), as well as your co-borrower’s representative score, and average them to arrive at an “average median” credit score. If this number meets the minimum requirements, you can qualify for a joint loan.
The higher the credit score your lender uses for your joint mortgage application, the better interest rate 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 maximum 43% debt-to-income (DTI) ratio.
- 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 minimum 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 below 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.
How to apply for a joint mortgage
- Collect your financial paperwork. You’ll need to document your personal information, assets, employment information and income. This includes W-2 or 1099 forms, tax returns, bank statements, retirement and investment account statements. Be prepared to provide additional documentation if you’ve been divorced, pay or receive child support, or if you’ve filed for bankruptcy.
- Decide which joint mortgage type is right for you. 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 will allow you to complete a mortgage application online or even over the phone. Of course, you can still go old-school and complete an application in-person.
What happens if you want to get out of a joint mortgage?
There are several potential paths out of a joint mortgage, each with different requirements. But the most important thing is to understand that all co-borrowers remain liable for the full debt until the mortgage is officially paid off, refinanced or transferred to only one of the current borrowers.
If you’re going through 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.
Need more detail? We cover the four main ways to exit a joint mortgage below.
Pros and cons of a joint mortgage
Pros
- You can lift your credit score by joining forces with a co-borrower that has 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 takes time, and you may not want to wait.
- 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 co-borrower’s. Lenders like to see a DTI ratio below 43%, and combining your income and debts with a co-borrower could lower your DTI ratio.
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.
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How to get out of a joint mortgage
Option 1: Refinance the mortgage in your co-borrower’s name
Refinancing to remove someone from the mortgage is the most common approach. The remaining borrower applies for a new mortgage in their name only, which pays off the existing joint mortgage. This requires the remaining person to qualify for the full loan amount based on their income and credit alone, which may not be easy.
Option 2: Sell the home, and pay off the joint mortgage
Selling the property allows both co-borrowers to exit the mortgage completely. The sale proceeds pay off the mortgage, and any remaining home equity is typically split according to ownership agreements or — in cases of divorce — court orders.
Option 3: See if you qualify for a mortgage assumption
Mortgage loan assumption lets one person take over the existing loan terms, though not all lenders allow this. The person assuming the mortgage must qualify financially and get lender approval.
Option 4: Buy out your co-borrower
Buyout arrangements involve one person purchasing the other’s share of the property (their equity). You’ll need a home appraisal to determine fair market value and may need to use a cash-out refinance to access funds for the buyout. There are also additional requirements you’ll need to meet to qualify for a cash-out refinance, including a maximum 80% loan-to-value (LTV) ratio.
Frequently asked questions
Joint mortgage (co-borrowers):
- Financial responsibility: Both parties responsible for repaying the loan
- Occupancy: Both parties are typically expected to occupy the home
- Ownership type: Both parties typically share ownership
Borrower with a cosigner:
- Financial responsibility: Both parties responsible for repaying the loan
- Occupancy: Cosigners usually doesn’t live in the home and just help the primary borrower qualify
- Ownership type: The cosigner typically has no ownership rights (doesn’t hold title)
If one co-borrower dies, the surviving co-borrower is still responsible for making the mortgage payments. Unfortunately, this can increase financial strain for the surviving party and lenders can still foreclose if the mortgage goes into default.
If both parties shared ownership of the home, what happens also depends on what sort of title vesting they used. If they used joint tenancy, the deceased’s share automatically transfers to the surviving mortgage holder.
But if the property is owned as tenants in common — a type of co-ownership with the possibility of unequal ownership shares — the deceased’s share doesn’t automatically transfer to the surviving mortgage holder. Instead, it passes on according to their will or, if there isn’t a will, a judge will decide the matter in probate court.
Only co-borrowers who hold title to the home can take the mortgage interest deduction when tax time rolls around. Co-owners typically divide the mortgage interest deduction based on their share of the loan and the amount they each contributed to the payments during that tax year.
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