Content of the material
- What do the banks think?
- Customer-Owned Banking
- All Co-Borrowers are Owners
- Can anybody get a mortgage?
- Which credit score is used for a joint mortgage?
- Will my credit score be affected?
- Related Resources
- Mortgage Qualification Tips: How To Qualify For A Mortgage
- Tenancy By Entirety: Defined And Explained
- Who’s Responsible For A Mortgage After The Borrower Dies?
- “Does employment history affect my mortgage application?”
- Who can be on a joint mortgage?
- How do you split the ownership of a multiple-mortgage property?
- What impact will deposit source have on a multiple applicant mortgage?
- Rated excellent by our customers
- Pros Of A Joint Mortgage Loan
- More Housing Options
- Tax Benefits
- Home Lending Customer Service
- Is there a maximum number of people who can be on a loan?
- FAQs About Co-Signing For A House
- Can a co-signer be removed from a mortgage?
- Can I co-sign a mortgage if I already have one?
- How long is a co-signer responsible for a mortgage?
- Who Can Co-Sign For A Mortgage?
- How to protect yourself
- Lenders Decide
- Lender Limitations for Multiple Applicants
- Qualifying for a shared mortgage loan
- How do creditors look at joint loans?
What do the banks think?
- One person can borrow on a jointly-owned property.
- All parties must consent to the loan.
- All parties are joint and severally liable for the loan.
- Every loan is considered based on its individual circumstances.
- Many banks will not accept this home loan structure.
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Mutual banks, credit unions, and building societies claim to offer lower interest rates and better service. Is customer-owned banking really that good?
All Co-Borrowers are Owners
Not only can every individual whose name appears on the deed to the property sign for a mortgage, they are all required to sign for or, at the very least, consent to the loan. When a lender gets ready to close on a mortgage loan, it searches the title to the property.
If the title shows that there are more owners on the property than there are applicants on the loan, it requires those applicants to consent. Consent is given when the co-owners sign the mortgage. The mortgage includes a clause known as a hypothecation, in which the co-owners agree that the property is being mortgaged to secure the obligations of the borrower.
Can anybody get a mortgage?
Mortgage lenders will need to approve prospective borrowers through an application and underwriting process. Home loans are only provided to those who have sufficient assets and income relative to their debts to practically carry the value of a home over time. A person’s credit score is also evaluated when making the decision to extend a mortgage. The interest rate on the mortgage also varies, with riskier borrowers receiving higher interest rates.
Which credit score is used for a joint mortgage?
When individuals apply for joint mortgages, the lender looks at the credit scores of all applicants. Since your credit score impacts your mortgage rates, you'll want to make sure you and all co-borrowers have done everything you can to improve your credit before borrowing.
Lenders may be more willing to lend to a bad-credit borrower if the other borrower(s) have good credit. However, they'll still consider it to be a riskier loan. One borrower's bad credit could affect both your ability to secure a loan and the rate you are offered.
Will my credit score be affected?
Yes: Joint mortgages with co-borrowers show up on each borrower's credit report. If you pay it responsibly, it can help to raise your credit score. But if you or your co-borrower miss a payment, it can adversely affect both of your credit scores.
When you apply for a joint mortgage, the lender will make a hard inquiry on your credit report. Too many hard inquiries can have a small negative impact on your credit score. However, many lenders allow you to shop around and get pre-qualified for a loan without a hard credit check. This allows you to compare loan terms and find the best mortgage lenders without worrying about harming your credit.
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Mortgage Qualification Tips: How To Qualify For A Mortgage Home Buying – 9-minute read Hanna Kielar – February 26, 2022 Many factors can determine whether you qualify for a mortgage. Learn what factors affect your mortgage qualification and how you can improve your chances. Read More
Tenancy By Entirety: Defined And Explained Home Buying – 5-minute read Lauren Nowacki – October 19, 2021 In some states, tenancy by entirety allows married couples to own property as a single legal entity. Read on to learn more about this type of ownership. Read More
Who’s Responsible For A Mortgage After The Borrower Dies? Mortgage Basics – 4-minute read December 15, 2021 Your loved one has just passed away, and you’re left with a million questions and feelings. Learn the answer to, “Who is responsible for their mortgage?” Read More
“Does employment history affect my mortgage application?”
Lenders also want to see a steady employment history, with at least two years in the same job or at least in the same field, with no interruptions during that time. If you’re self-employed or own a business, they’ll want to see at least two years of profitable operations.
If you have a variable income, such as from a business, commission sales, overtime worked or the like, the lender will most likely average your earnings over the past two years. However, if your earnings changed significantly from one year to another, they may only consider your earnings from the lower of the two years.
Part-time income or a second job can be counted as income for purposes of qualifying for a mortgage loan. However, you’ll need to have held the job for at least two years and had steady earnings from it during that time.
Who can be on a joint mortgage?
Although joint mortgages are most commonly taken out by two spouses, there are lenders who allow two family members to take one out together, or even two friends.
How do you split the ownership of a multiple-mortgage property?
If you wish to buy equal shares of a property with others, you would take out a joint tenants mortgage. This means that: If you decide to sell up the property, you will share the proceeds equally. In the extreme case of one tenant dying, the other borrowers would inherit the deceased’s share of the property. If one tenant decides at some stage that they want to move out, they can sell their share of the property. In this instance, the other tenants can either buy up that share outright or if they need to borrow money in order to do so, they will need to extend their mortgage. The ability to do this will rest with the applicants’ mortgage company, who will assess whether the remaining applicant or applicants can afford the higher mortgage repayments. If each applicant wants a predefined share in the property, you should apply for a tenants in common mortgage. With this type of agreement, you will all legally own either equal shares or a percentage of the property to be agreed upon. The legal document specifying the percentages owned by each of the applicants (drawn up by a solicitor) is called a ‘Deed of Trust’. The same rules apply as they do for joint tenants should anyone want to move out and sell their share of the property. At some time in the future you may all decide to sell up and split the proceeds of the sale of the property between you according to the percentages agreed upon in your Deed of Trust. Or you can sell your share of the property separately or even grant it in a will. Be aware that while you’re in a joint mortgage, regardless of whether it’s a joint tenants or tenants in common mortgage, your credit record can be affected and that will influence how a lender will view you in future.
What impact will deposit source have on a multiple applicant mortgage? With a lot of lenders, deposits need to be from the people on the mortgage. If someone is gifting a deposit that’s fine, but lenders can restrict who this is – direct family are usually the only relationship that is widely accepted. Some lenders however, are happy with more distant relatives (cousins, uncles, nephews etc.), business partners or friends, so you can have 3 people on a mortgage. Lenders will allow gifted deposits from family members which you can add to your own savings and any contributions you might acquire from a Help to Buy scheme. Who the lender will approve of as a provider of a gifted deposit varies but follows a distinct pecking order. Most lenders will accept a deposit gifted by parents, then in order of less likely relatives they will accept from: Grandparents Brothers and sisters Uncles and aunts Extended family A few lenders consider gifted deposits from friends, though it is possible. If someone is gifting a deposit and living in the property, without being on the mortgage, almost all lenders decline with a few specialists the exception.
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Pros Of A Joint Mortgage Loan
So, why would you want to get a joint mortgage loan over a loan with just your name on it? Here are a few of the benefits that come along with getting a joint home loan.
More Housing Options
With a joint mortgage, you get the chance to pool your income with another person’s. This can potentially give you the opportunity to pursue homes that would otherwise be out of your individual price range, not to mention you’ll likely be able to qualify for a larger loan.
As with most mortgage loans, you can typically deduct joint mortgage interest – and some other fees – when filing taxes. Typically, the person who actually paid the interest (and property taxes) is the one entitled to deduct the expenses on their report. If both you and your spouse or co-borrower paid a share of the interest or taxes, you will want to attach an explanation of that and how much you each paid to your return.
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Is there a maximum number of people who can be on a loan?
According to Names, conventional loans backed by Fannie Mae and Freddie Mac typically allow up to four or five co-borrowers on a mortgage loan.
“Fannie allows for a max of four borrowers, and Freddie will permit up to five borrowers. But for manually underwritten loans, there is no limit on the number of co-borrowers,” he said.
Manually underwritten loans are applications not run through a computerized approval system but fully reviewed by a human underwriter.
For FHA, VA, and USDA loans, there is also technically no limit on the number of co-borrowers allowed, according to Names.
The verdict on how many borrowers are allowed usually rests with the lender, Luedtke said.
“I’ve seen as many as eight borrowers on one mortgage loan,” he says. “There may be instances such as multiple heirs of a deceased person vesting ownership, with proper documentation pursuant to an unprobated estate. For example, five children of a deceased father choose to be listed on the title and then would be required to sign the mortgage.”
But if you are simply looking to purchase a home, rather than take ownership of one that’s already in the family, you’ll likely want to keep the number of co-borrowers to five or less.
FAQs About Co-Signing For A House
Can a co-signer be removed from a mortgage?
There is the option for a co-signer to ask for a release from obligations under the loan.
Normally, the person occupying the property has to sign off on this, but there may be a way around this. Consider drafting an agreement with the occupant of the home that says that in exchange for you co-signing, you have the right to request removal from the loan if they stop making payments.
Still, the lender then has to sign off on your removal from the loan. If the occupant has already missed payments, a lender isn’t likely to remove a co-signer from the mortgage.
Can I co-sign a mortgage if I already have one?
Having a mortgage of your own won’t keep you from co-signing for another one. Be sure your finances can handle both monthly payments if the primary borrower misses theirs, though.
How long is a co-signer responsible for a mortgage?
Co-signing on a mortgage makes you responsible for the loan for its full term. As explained above, you can remove yourself from a co-signed mortgage under certain conditions.
Who Can Co-Sign For A Mortgage?
Typically a co-signer on a mortgage will be parent, spouse, friend or a family member.
In theory, as long as you can qualify financially, there aren’t many restrictions on who can co-sign with or for someone. However, for some types of loans, including some mortgages, lenders want to know that there’s a close relationship between the signers so that the person doing the co-signing has a stake in helping you get the property.
The logic here is that sometimes if you’re dealing with family, they’ll be willing to help you out when someone else wouldn’t, including with your mortgage payment. Some mortgage investors like the Federal Housing Administration (FHA) will allow you to qualify with a higher debt-to-income (DTI) ratio as an occupant and make a lower down payment if you have a family member co-sign the mortgage. Not all investors care about the co-signer’s relationship to the buyer, so be sure to speak with a Home Loan Expert before deciding how to proceed.
How to protect yourself
Before you agree to a mortgage with other people, protect yourself and consult with a business or real estate attorney who can explain your options and outline the risks you face.
“Contact an attorney to work out what type of entity is going to take title to the property. This could be an LLC, a corporation, a trust or a partnership,” says Jim Finn, an attorney at Clark, Hunt, Ahern & Embry in Cambridge, Massachusetts. “Once you decide what would work best for your particular situation, then the attorney can draft the legal documents.”
If you’re going in on an investment property with a few friends or family members, forming an LLC can protect members from liability if there’s a dispute or lawsuit, or someone stops paying the mortgage or wants to sell the property.
“If it’s an investment, I would suggest they do an LLC because that’s going to give them insulation from personal liability,” Finn says. “They would have an operating agreement which would spell out how they’re going to split proceeds and share costs.”
Before you form an LLC, however, make sure your lender is open to giving mortgages to LLCs or similar entities, Finn says.
“Some lenders do not want trusts or LLCs to be on the mortgage; they want individuals,” Finn says.
The FHA provides underwriting guidelines which lenders must follow to gain FHA endorsement once the loan is funded. FHA’s guidelines for its most widely-used program, outlined in Handbook 4155.1, do not specify a maximum limit for the number of applicants, co-borrowers or co-signers on a loan. As such, lenders can dictate the maximum number of a borrowers allowed on the loan. A lender does not have to accept a co-signer on the loan. If the borrowers’ incomes and assets present a high level of risk, the underwriter considers the merits and drawbacks of the loan, and uses this as a basis for its decision to allow a co-signer.
Lender Limitations for Multiple Applicants
Although there’s not a legal constraint against having multiple mortgage applicants, a lender typically has to underwrite the loan manually if there are more than four borrowers. Most big lenders use an automated underwriting process using, for example, Fannie Mae’s Desktop Underwriter program. This software supports four co-applicants on a mortgage. If there are more than four co-applicants, the lender must initiate a manual underwriting process.
But since most big lenders don’t do manual underwriting, the borrowers must find a lender willing to underwrite the multi-applicant mortgage. Lender options include community banks, credit unions and mortgage companies.
Qualifying for a shared mortgage loan
The process of qualifying for a home loan with another person is much the same as it would be otherwise, says Venable. “We look at every application the same way based on our product guidelines, and we look at the big picture. We factor in credit score; we look at a two-year history of income for both wage and self-employed borrowers, and we look at the debt-to-income ratio,” he explains.
Just keep in mind that lenders will look at both parties’ financial strengths and weaknesses. If one person is qualified but the other is struggling with their finances, it could hurt the first borrower’s chance at qualifying.
For instance, if one co-borrower has a great credit score and the other one has a poor credit score, lenders are going to factor that poor credit score into the equation. They won’t focus solely on the borrower with good credit.
Similarly, if one person has lots of existing debt, that will count against both borrowers’ combined debt-to-income ratio. In that case, it could be harder to qualify.
So while co-borrowing often makes it easier to qualify for a mortgage, it can also have drawbacks. It’s important to consider both borrowers’ full financial picture before applying.
How do creditors look at joint loans?
Joint loans affect both borrowers' credit for good and for ill. If you make payments on time, both borrowers will enjoy the benefits, which include a stronger credit history and an improved credit score through time. If you fail to make timely payments, both borrowers will see negative effects on credit.