What is a joint mortgage, what are they and what are my options? A joint mortgage is shared loan by multiple parties (Husband, Wife, Children, Relatives) who may be 2 to 4 people. Typically a group of home buyers with their friend, partner, or family member can come together and apply for a mortgage loan. They can combine their money for the mortgage deposit.
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.
This article has details to help you decide if a joint mortgage is a right choice for you. Furthermore, you’ll also know how much is Mortgage Payments to pay and how to calculate it. You can calculate it by using Interest rate, Taxes and Insurance [Online Calculator]. You can download the 3-4 person mortgage calculator free online to complete your calculation.
There’s a guide on How to Apply for Mortgage Loan with Legal Requirements for your perusal. If you are intelligent, your question will be; “read further, “how does a joint mortgage affect debt-to-income ratio?” You will know it if you follow me till the conclusion part of this article.
What Is A Joint Mortgage Loan?
A joint mortgage as it is been stated in the above introduction 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 is actually different 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 A Joint Mortgage Loan Works Locally
When you get a joint mortgage, you share responsibility for the loan with another person, it can be a parent, child, partner, or friend. While joint mortgage applicants are often married, it’s not necessary to be married to the other party on your loan. It simply qualifies you together with being 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 access 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 being approve, 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.
Also 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.
With that being said, be assure that the person you decide to share a joint mortgage with is fully invested in repaying there share of loan.
Score: Whose Score Is Used On A Joint Mortgage?
Whose credit 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 makes 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.
For more updates, you can open my previous articles below for more details on FICO credit score reports.
- Credit Score Check, Reports and Highest Range in Your Finance
- Best Strategies to Improve Your Credit Score from 500 to 800
- What are the 5 Factors That Affect Your Credit Score? FICO Score
Requirements for Joint Mortgage Purchase
To be qualify for a joint mortgage, there are criteria you need to meet as any other borrowers would for a loan these 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) is be examine rather than just that 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 earlier, just because both parties are on a loan doesn’t mean they both operate on 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 after Breakup
If you are involve in a joint mortgage, and for some reasons it no longer of interest to you to be part of it at any point, it is very much possible to leave. Escaping the legal responsibilities of a joint loan typically requires a refinance to remove you or the other borrower(s) from the loan.
Here are a few options to consider if you find yourself in this position.
1. Get into Agreement with your Ex Partner
If you no longer want to to involve in a joint mortgage, the first step you should take is to have a honest and sincere conversation 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 reasons 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 issues as such with a honest conversation so as to talk things through.
Also consider the costs to refinance before bringing it to your co-borrower so you both can be inform about what it would cost to remove you from the loan and leave the rest to the other party.
2. Buy-Out Your Partner by Paying them Off
If your partner or co-borrower wants to get 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.
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.
3. Sell the Home Together and Share it
If there is an agreement between both parties, 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 loan.
If one or more of your co-borrowers is attach to the home, however, this option may not be workable for you.
The sources below are for more information;
- How to Apply for Mortgage Loan in Nigeria with Legal Requirements
- How to Become a Mortgage Loan Officer in Ghana, UK, Canada, USA
- How Much does Mortgage Loan Officer Earns as Salary or Commission?
- Who Can Override The Power of Attorney
- Power of Attorney (Meaning, Forms, How to Get it)
How does a Joint Mortgage Affect debt-to-income ratio?
When you and your partner is applying for a joint mortgage, the debt-to-income ratio is an important factor that lenders consider. The debt-to-income ratio measures the percentage of your monthly income that goes towards debt payments. When two or more people apply for a joint mortgage, both of their incomes and debts are taken into account. This means that the total monthly debts of both applicants are considered when calculating the debt-to-income ratio.
On one hand, if both applicants have low debt obligations and high incomes, a joint mortgage can have a positive impact on the debt-to-income ratio. The combined income of both applicants can help lower the ratio, making it more favorable for loan approval. This is particularly beneficial if one applicant has a high income and the other has minimal debts.
On the other hand, if one or both applicants have significant debts or lower incomes, a joint mortgage can potentially negatively affect the debt-to-income ratio. If the combined debts of both applicants are high compared to their combined incomes, it can increase the debt-to-income ratio, making it more challenging to qualify for the mortgage. Lenders may view the higher debt load as a potential risk factor, which could result in a higher interest rate or even denial of the loan.
What are the advantages of joint mortgage
- Increased Borrowing Power
- Shared Financial Responsibility
- Easier Qualification
- Lower Down Payment
- Improved Debt-to-Income Ratio
- Equal Homeownership Rights
- Enhanced Access to Mortgage Products
- Stronger Loan Repayment Capability
- Shared Investment and Long-term Planning
What are the Disadvantages of joint mortgage
- Shared Liability
- Credit Impact
- Potential Disputes
- Limited Autonomy
- Risk of Relationship Breakdown
- Difficulty in Future Borrowing
- Unequal Contributions:
- Shared Financial Consequences
- Potential Loss of Control
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.
In summary, a joint mortgage can have both positive and negative effects on the debt-to-income ratio. It depends on the financial circumstances and debts of both applicants. It’s important to carefully consider the financial implications and consult with a mortgage advisor or lender to assess the impact on the debt-to-income ratio before applying for a joint mortgage. Read more on Advantages and Disadvantages of Join Mortgage here.