According to the financial portal Mortgage Calculator, interest rates fell sharply this past year. This causes refinancing to increase by around $2.7 trillion. The total volume of transactions for 2020 was expected to total around $4.1 trillion.
Does that pique your interest in buying a house with your partner or someone else? If so, a joint mortgage loan is a good option to consider. This is especially true for those who want to combine income levels and qualify for a better mortgage together.
While the mortgage loan princess might seem simple and straightforward, there are a few factors that you’ll want to consider before applying for a joint mortgage loan. After all, it’s a pretty big decision to make with someone, right?
You’ll definitely need to ensure that you both have a reliable and stable form of income, and your credit scores will play a big role in the type of loan interest rates you’ll be able to get. Here’s what else to consider when learning how to apply for a joint mortgage loan.
Who can apply for a joint mortgage loan?
You don’t have to be married to apply for a joint mortgage loan with someone; anyone can apply for a joint mortgage loan. However, couples are generally the main applicants for this type of loan. But there certainly are a few circumstances in which two or more people can apply for a joint mortgage, such as:
- Parents and children. This is a great option for young adults who have been able to save money but don’t yet have a credit history and therefore can’t purchase their own home alone. In this case, parents or family members can help by being a primary applicant.
- Unmarried couples. A large share of unmarried couples also consider buying a house together as part of their long-term, life goals. Combining their incomes and sharing the costs make this a good option for unmarried couples as well.
- Friends. It is very common for friends to make the decision to rent a house or apartment together to save money, but realistically, buying a home could be a smarter option from a financial point of view. You’d end up paying equal or lower monthly payments compared to your rent payments (depending on the value of the house you’re looking at buying).
Overall, it’s important to understand that as long as you’re over the age of 18 and can provide the necessary documents required to apply for a mortgage loan, you’re eligible to apply for a joint mortgage loan with one or more other people.
What are the benefits of a joint mortgage loan?
There are tons of benefits that a joint mortgage loan can offer for anyone who is contemplating the idea of applying for one. But, here are a few of the biggest:
- The ability to combine your income and finances with other people to apply for the mortgage loan. This means that you’re able to qualify for a higher loan amount, which means that you can buy a nicer home.
- You’ll be eligible to obtain tax benefits, such as claiming tax relief on your own payments and the property transfer tax.
- When applying for a joint mortgage loan, they’ll look at everybody’s credit score. This could mean that, along with your combined incomes, you might end up getting a loan with a lower interest rate than if you applied alone.
- The shared responsibility is a benefit for most! You’ll both make payments each month, reducing your overall financial responsibility as an individual.
- With a joint mortgage loan, you have the opportunity to improve your credit rating as long as you make on-time payments. This is the same for all types of loans!
What information is needed for a joint mortgage loan?
When people apply for a joint mortgage loan, a lender will analyze the qualifications and credit history of all applicants, but mainly of the person with the lower credit score, to define whether or not to approve the loan and what the terms and rate of the mortgage loan will be.
There’s one key thing to understand here. Even if one partner has excellent credit, if the other partner’s credit is poor, it’s going to hurt the overall application.
Who’s credit score do they look at when applying for a joint mortgage loan? Lenders will typically use the lowest average credit score between partners. This means that if your average credit score is 750 but your partner’s score is 700, they’ll look at the 700.
However, both partners are equally responsible for the entire loan. In the event that your co-borrower can’t make the monthly payment, you are responsible for covering the difference.
A application will be sent to the lender. That lender will review several key qualification criteria for each co-borrower, including:
- Assets and Income: Lenders will analyze each party’s assets and income.
- Credit Score: Applicants’ credit scores are considered. This means that if a person has bad credit, it will negatively affect the terms and rates of the mortgage.
- Employment History: The lender examines the employment history of each applicant. If one or both parties have no current record, are unemployed or self-employed, it can make the application a bit more difficult to process.
- Debt-to-Income Ratio: The debt-to-income ratio helps lenders determine credit risk. For example, if you are more in debt than you are receiving in income each month or year, lenders may worry that you will not be able to make payments.
Who is responsible for payments on a joint mortgage loan?
A joint mortgage loan is a loan that two or more people apply for together. So, each individual who applies and is on the loan agreement must make payments.
So, just to reiterate, anybody whose name is on the joint mortgage is legally and financially responsible for the entire loan acquired.
This means that if you and your partner each agree to pay off half of the loan. If this person goes broke or cannot keep up with the payments, the lender will be in a position to collect the full payment of the debt from you. Yikes.
You can avoid major issues like this by communicating openly about finances and payment options before you even apply for the loan. Start by chatting about your general financial goals. Then get more personal by talking about income limits, debt, and your credit scores.
Aren’t sure how to start that conversation? Use Float. Our mission is to make difficult financial conversations easier. We do this by offering the only financial app for couples that allows for full credit monitoring and sharing.