As we all know, the mortgage market had an atypical year in 2020 thanks to the pandemic. But, it’s been mostly good news for those looking to buy a home. In fact, Freddie Mac is still reporting that 30-year fixed-rate loans are averaging 2.77%, while 15-year loans are at 2.21%.
With loan rates like that, it’s a great time to buy a home whether you’re married or not. Sure, historically, joint mortgage loans were taken out by married couples, but that’s not entirely the case anymore. Whether you’re common-law married, simply happy living life together or even want to apply for a joint mortgage loan with a friend, this type of loan situation can benefit all parties.
The main benefit of a joint mortgage is being able to buy a house that you may not otherwise be able to pay on your own, since having two or more incomes paying a single mortgage definitely opens the possibility of being able to buy a better home (you know, you’re dream home).
Interested in learning about the possibilities? Here’s everything you need to know about joint mortgage loans.
What is a joint mortgage?
A joint mortgage loan is the same as a mortgage loan except there is more than one applicant. In this case, the financial resources of each applicant determine the approval and terms of the loan. Everyone involved in the joint mortgage shares the legal responsibility to repay the loan.
Now, it’s important to clarify that joint mortgages are not the same as joint property. The mortgage determines who must make the loan payments, while the property title establishes who owns the home. So, you could have a joint mortgage loan and be the only owner of the property.
People who make the decision to apply for a mortgage together generally do so because they can get better rates and terms on the loan. Normally this process is carried out together with a partner, but you can also apply with friends and family. Usually, there is a maximum allowed of 3-4 applicants (depending on the lender). For example, a son can obtain a joint mortgage with his father in order to increase the chances of success of his application.
How do joint mortgages work?
The first thing to keep in mind is that with a joint mortgage, all co-signers are legally responsible for the entire loan. This means that if you and your partner or family member agree to pay half the loan and they end up going bankrupt, the financial institution may try to collect the full payment from you.
To apply for a joint mortgage loan, lenders consider the credit scores and risks of both applicants when deciding on loan rates and terms. If your partner has an excellent credit score and sufficient income, this could help you get a good interest rate. But on the other hand, if your partner has a poor credit history, it could affect your ability to get approved for the loan.
What about the actual process of applying for a joint loan? You’ll submit an application and the lender will review several key qualification criteria for each co-borrower, including income, credit scores, debt, assets, and employment history.
Which credit score is used for joint mortgages?
When people apply for a joint mortgage loan, the lender usually looks at and considers the credit scores of all applicants. When it comes time to determine the loan amount and interest rates, however, they’ll look at the average or middle score of the person with the lower scores.
This means that if your three scores (from Experian, Equifax, and TransUnion) are 670, 672, and 675 and your partner’s scores are 620, 632, and 630, they’re going to use that 632 score from your partner or an average of their three scores. A financial institution may be willing to grant the loan to a person with bad credit history if the other applicants have good credit scores. However, they will still consider it a high-risk loan.
Do keep in mind that while the terms of the loan are based on the credit of the higher income partner, both partners are equally responsible for the entire loan.
Advantages of a joint mortgage loan
Thinking of combining resources and applying for a joint mortgage loan? It helps to understand the advantages and disadvantages of entering into these types of agreements.
Among the advantages of a joint mortgage loan, especially for married couples, you’ll find that the biggest benefits are:
- Being able to combine resources and income with other people to apply for the loan. This increases your overall ability to take out a bigger loan.
- Tax benefits!
- The probability of qualifying for a home loan with a better rate.
- Shared responsibility, both legally and financially.
- The opportunity to improve your credit score with your partner as long as you both make on-time payments.
Disadvantages of a joint mortgage loan
Now, joint mortgage loans aren’t all happy and successful financial endeavors. There can be drawbacks. For example, maybe your relationship ends or you have a falling out with one of the other people you applied with.
Keep in mind that a joint mortgage loan can cause issues, such as:
- One partner’s credit or financial information lowering the strength of the overall application and resulting in an unfavorable home loan.
- The risk of hurting your credit score should you or the co-borrower fail to make on-time payments. This is the same for any loan, however.
- Confusion regarding ownerships. Because joint loans don’t automatically equal joint ownership and even more so when your name is not on the deed of the house, this could cause issues later on.
- Difficulty selling your share to a new investor. This is in the case that you separate from your partner and want to sell your portion of the home. The new buyer will have to qualify with the lender and will also have to agree on everything with the remaining partner.
Is a joint mortgage loan right for you?
The first step in determining whether or not a joint mortgage loan is right for you and your partner is checking your credit score. By checking your score, you’ll be able to determine where you’re at and what you need to improve.
With Float Credit, you’re able to go on that credit monitoring journey with your partner. We’re the only app that lets you check your and your partner’s credit reports with complete privacy control. You’ll also be able to access tips and tricks that’ll help you increase your score. And, you can gain access to our loan marketplace.
About the Author – ELIZABETH THORN
After receiving a degree in film from UCLA, Elizabeth left Los Angeles to travel the world and focus on storytelling and content creation. She has since worked as a freelancer and staff writer for publications in Europe, Asia, and North America, namely in the areas of travel, tech, finance, and business.