What You Need to Know Before Taking Out a Joint Mortgage
Married couples accounted for just 61% of homebuyers in 2019, according to National Association of Realtors data reported by Experian. But you don’t have to be married — or even a couple — to buy a house with someone else. And with the price of homes skyrocketing, purchasing a home with a roommate, trusted friend or partner might be the only way you can afford the house you want.
But purchasing a home with someone you’re not married to means a you have to consider factors married couples don’t.
Before You Apply for a Joint Mortgage
Before applying for a joint mortgage, you’ll want to evaluate both people’s credit histories, credit scores, existing debt and income. Most lenders look for a debt-to-income ratio of no more than 36%, according to real estate website Zillow, although that number may vary depending on the loan type. Your debt-to-income ratio takes into account your house payment and minimum monthly debt payments, including car loans, student loans and credit card debt, compared to your gross monthly income.
To qualify for a joint mortgage, both borrowers also must have an acceptable credit score. That means a minimum FICO score of at least 620 for a conventional mortgage and 580 for most FHA or VA loans, according to QuickenLoans.com. If one party’s credit score is excellent and the other person just meets the minimum requirements, you could pay a higher interest rate for the mortgage.
Before You Agree to a Joint Mortgage
Say you’re approved at a desirable interest rate, you’ve determined how much you will each contribute to the down payment and you’ve found the home of your dreams. There are a few more steps to take before you should both feel comfortable with the arrangement.
Have an attorney draw up a legal agreement outlining each person’s responsibilities in the deal, including how you will split household expenses — including mortgage payments — and what happens if one person doesn’t want to live in the home anymore. You’ll also want to determine what happens if one person loses their job or can’t contribute to mortgage payments or household expenses. And because only one person in a joint mortgage can take the mortgage-interest tax deduction on itemized tax returns, you should decide in advance which of you will claim it.
You’ll also need to decide whose name goes on the title.
The Experian blog notes that there are three ways homebuyers can hold title. One person can hold sole ownership, which means the other party may contribute to the mortgage but owns no rights to the house. A joint tenancy with right of survivorship means you each own equal shares of the home, and if one person dies, the home automatically goes to the surviving titleholder. Finally, tenants in common can split ownership based on different percentages. One person can sell their share without telling the other titleholder, and they can bequeath their portion of ownership to their heirs.
Which options are available to you depend in part on your lender and the type of loan you have.
Consider the Risks of Joint Mortgages
Having a joint mortgage can carry substantial risks. If one person wants to take the other person off the loan, they will need to refinance, which could mean the added expenses of closing costs and a home appraisal.
If one borrower refuses to pay their share and the other party can’t make up the difference, both people will see their credit scores drop and could lose the home to foreclosure.
With careful communication and the right legal documents, a joint mortgage can be a good way for an unmarried couple, or even close friends or family members, to enjoy the benefits of homeownership. But enter into such an arrangement with care, because it might be easier to continue renting while you look at ways to build wealth without buying a home.
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