Joint Loan vs. Cosigning

With both joint loans and cosigned loans, another person helps you qualify for the loan. They are responsible for repayment (along with the primary borrower), and banks are more willing to lend if there’s an additional borrower or signer on the hook for the loan.

However, joint loans are different from cosigned loans.

A cosigner has responsibilities but generally does not have rights to the property you buy with loan proceeds. With a joint loan, every borrower is usually (but not always) a partial owner of whatever you buy with the loan. Cosigners simply take all of the risks without any benefits of ownership.

Cosigners do not have the right to use the property, benefit from it, or make decisions regarding the property.

Joint Loan vs. Cosigning Joint loan Borrowers take out the loan together and jointly own the property the loan pays for. Cosigning One borrower takes out the loan and owns the property it pays for. The cosigner has no right to the property but guarantees they will pay the loan if the primary borrower defaults. Both Cosigners and joint borrowers are 100% responsible for the loan, including the consequences for defaulting on payments.

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Who can apply for a joint mortgage?

Almost anyone can apply for a joint mortgage. The most common reason people apply for joint mortgages is marriage. When two people enter a commitment, they often share finances. So it makes sense for both names to go on the home loan application. But you don’t have to be married to apply for a joint mortgage. In most states, you just have to be 18 or older. Other situations where two or more people apply for a joint mortgage include:

  • Parents and children. When young adults are starting out, they may not have the qualifications to purchase a home on their own. They might have saved enough to afford a home, but don’t have their credit history established yet. In this case, parents or relatives put their names on the loan to assist.
  • Unmarried couples. It’s not uncommon for two people who aren’t married to purchase a home together. While a mortgage may seem unachievable as individuals, couples may find it easier to combine finances and buy a home with a joint mortgage.
  • Friends. Friends often rent together to save money, but buying could be a more financially-savvy option. A joint mortgage between friends could result in the same or lower monthly payments compared to renting, depending on the home they buy.

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 take title

Also, consider what happens in the unlikely event that one owner passes away. That can wrap the surviving owner in legal spiderwebs.

As Realtor.com explains, when each co-owner has an equal share of the home, the official status is known as “joint tenants with right of survivorship” (JTWROS). That’s another way of saying that title is held between all co-owners. If a co-owner dies, their share goes to the other owners.

In a “tenants in common” (TIC) agreement, each co-owner can pass along their ownership through a will, meaning the remaining tenants might end up sharing the home with someone they never intended to. This is an area for which you should consider getting legal advice from a real estate attorney.

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The benefits of a multiple-person mortgage

There are many reasons why getting a mortgage with multiple applicants can be beneficial, such as…

  • More deposit to put down: It’s possible for more than two family members or friends to club together to combine deposits and put down a bigger one than they’d be able to manage alone. There are many benefits to this, namely that a larger deposit could mean you have access to more favourable rates and deals, and would need to borrow less than you would if you only had one deposit to put down.
  • Combined income helps make payments more affordable: Monthly repayments on a mortgage that would seem daunting for a single buyer are often made more affordable with a multi-person mortgage.
  • You may be able to borrow more together: Mortgages for multiple applicants are based on an income calculation which works on the same basis as applying on your own. So, if you earn, say, £30k and could borrow up to 5x income, your mortgage would be capped at £150k. Adding two other applicants earning the same would increase that to £90k, which at 5x income would offer a maximum loan of £450k.

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.

Bad credit mortgages with multiple applicants

Generally, mortgage applicants are as quick as the slowest wheel i.e. if one has bad credit and the other clean, the bad credit is still taken into account by the lender.

If, for example, you have three applicants on a mortgage and one of them has had credit issues. This means you may end up paying a slightly higher interest rate, depending on the severity and how recent the credit issues are. Interest rates and mortgage deals for those with credit issues looking to apply for a bad credit mortgage are extremely competitive currently, and many people are surprised by how attractive the rates are.

That said, some borrowers may still benefit from applying in sole name, particularly if issues are more severe and they are ineligible as a result.

As well as considering all of the multiple applicants’ credit scores, lenders will consider all of your incomes, your debt-to-income ratios and the size of deposit you are able to accumulate.

If one of your fellow applicants has bad credit, your overall credit score can be raised by others who have clean credit, though perhaps not enough to put you in a position for you all to borrow from a lender under the most favourable terms.

One solution is to ask for support from a co-borrower with a high income and good credit to come in on the loan. This could be a family member, as discussed earlier. Again, the co-borrower needs to be aware that they are responsible for any missed payments and that their beneficiary’s bad credit can, in turn, affect their own credit ratings. If you were to take in a mortgage without the bad credit applicant, you could potentially add them on later.

Bottom Line

Joint mortgages aren’t uncommon, especially among married couples. When deciding whether to get one, you have a few things to consider. You have to determine what kind of mortgage you want and how you can qualify for it. If applying through a joint mortgage will expand your mortgage opportunities, then it could be the right move for you. Just make sure you and your partner(s) are on the same page when it comes to repayment.

Refinance

Refinance your existing mortgage to lower your monthly payments, pay off your loan sooner, or access cash for a large purchase. Use our home value estimator to estimate the current value of your home. See our current refinance rates and compare refinance options.

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.

Tax Benefits

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.

Pros of co-owning a home

Venable’s quick take is that more borrowers make loan qualification easier.

“With more challenging lender standards when it comes to credit score and debt to income ratio, it’s easier to qualify if you bring in more income to offset the debt,” he explains.

There’s also the perk of getting to claim mortgage interest on your taxes, but keep in mind, you’ll have to split the total amount with your co-buyers.

Click here to apply for a co-ownership mortgage (May 3rd, 2022)

FAQs About A Joint Home Loan

Can three people be on a mortgage?

There is no legal limit to how many people can be on a mortgage, but your lender may have restrictions in place. Remember that everyone on the loan also has to be able to qualify for it to be approved, and some lenders may see a big group of names as a potential risk.

Even if multiple people aren’t on a loan, keep in mind multiple parties can still own a property through joint tenancy or tenancy in common.

Can a joint mortgage be transferred to one person?

A mortgage can technically be transferred to one person via a refinance. For this to happen, you will either need to refinance to a sole ownership loan or, if your partner will not agree to it, a cash-out refinance that will give them their equity in exchange for the title of the house.

Can an unmarried couple buy a house together?

Yes, an unmarried couple can buy a house together. You don’t have to be married to another person to buy a house with them or get a joint mortgage. However, there are some factors to consider when buying a home as an unmarried couple that you’ll want to research to make sure you’re getting the best deal when applying individually or for a joint mortgage.

In a joint mortgage, what happens if one borrower dies?

If a co-borrower dies, then responsibility for the mortgage payment falls to the surviving borrower(s). If the deceased party had their name on the home’s title, partial ownership could potentially pass to a family member or heir through a will – otherwise, probate court will determine what happens to the deceased party’s share of the title.

Responsibility and Ownership for Joint Loans

Before deciding to use a joint loan, examine what your rights and responsibilities are. Get answers to the following questions:

  • Who is responsible for making payments?
  • Who owns the property?
  • How can I get out of the loan?
  • What if I want to sell my share?
  • What happens to the property if one of us dies?

Co-ownership is treated differently depending on the state you live in and how you own the property. If you buy a house with a romantic partner, both of you may want the other to get the home at your death, but local laws may say that the property goes to the deceased's next of kin. Without valid documents to say otherwise, the family of the deceased may become your co-owner.

Getting out of a loan can also be difficult (if your relationship ends, for example). You can’t just remove yourself from the loan, even if your co-borrower wants to remove your name. The lender approved the loan based on a joint application, and you’re still 100% responsible for repaying the debt.

In most cases, you will need to refinance a loan or pay it off entirely to put it behind you. Even a divorce agreement that says one person is responsible for repayment will not cause a loan to be split (or get anybody’s name removed).

The Risks Of Co-Signing A Mortgage Loan

Having or being a co-signer can have its drawbacks too. Consider the following risks involved in a co-signed mortgage loan.

  • Being responsible for the loan: If the person you co-sign for misses a payment, the lender or other creditor can come to you to get the money.
  • Damage to your credit: The primary borrower’s late payment also shows up on your credit report. It’s an even worse credit hit if the person goes into foreclosure.
  • Something happens to your co-signer: If your co-signer passes away, you might not be able to qualify for a new mortgage if it came time to refinance. If you can, you might wait until you can be approved on your own.

Lenders Decide

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.

Mortgage Versus Title

It can be easy to confuse the home’s title with its mortgage. The mortgage doesn’t necessarily define homeownership. It merely outlines who will be paying back the loan. If you’re worried about being protected in the event something happens to the other people living in the home, putting your name on the mortgage isn’t the best protection against that. You generally can assume the mortgage if the other party on the title dies, especially if you were married.

The title, or deed, is the document that establishes ownership of a house. There is no limit on the number of people who can be on a property title, which is why timeshares are allowed to exist. Having multiple names on your property title might be enough to solve whatever issue you were trying to resolve by putting multiple names on a mortgage.

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