Are you considering a joint mortgage? Here’s what you need to know
If you live with someone else and are thinking about buying a home, chances are you are considering joint mortgages. Getting a joint mortgage with a trusted partner or friend could be beneficial as you can consolidate your income and credit scores when applying to a lender.
Another advantage of joint mortgages is that you can split your monthly payment. While the process of obtaining a joint mortgage may seem very similar to a standard mortgage, there are a few important differences to keep in mind. Knowing these factors ahead of time can help you determine if a joint mortgage is ultimately right for you.
You can simplify the home buying process by comparing mortgage rates on Credible, an online loan market. You can also use their mortgage calculator to estimate your monthly payments based on today’s rates.
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What are joint mortgages and how do they work?
A standard mortgage is usually when only one person applies for a home loan and is approved. If you are looking to buy a property with another person or even multiple buyers, you will need to get what is called a joint mortgage. Although many lenders allow up to four people to apply for a mortgage together, we will refer to a “joint mortgage” as a mortgage between two different people for clarity and consistency in this article.
Almost anyone can apply for joint mortgages, as long as you are at least 18 years old. This option may seem ideal for married couples or unmarried couples who share their finances anyway, as well as roommates or even friends looking to buy real estate together as part of a business. It can also be useful for anyone who feels they cannot qualify for a mortgage without a co-signer. Anyone whose name will appear on the loan must qualify and apply for a mortgage.
On the bright side, you and the other person can put your finances and income together so that you can get approval for a larger loan. But on the other hand, each person’s credit history, liabilities and debt-to-income ratio will also be taken into account. If one of the applicants has bad credit, it can be difficult to get approved for a joint loan.
Joint mortgages are often confused with condominium, which is different. Co-ownership is when the title or deed is in both your name and the name of the other person. That said, you can be financially responsible for a property through a joint mortgage but not have legal liability as a condominium if your name is not on the deed.
The home buying process can be confusing, especially for home buyers looking to secure a joint home loan. Online loan markets like Credible make it easy to find mortgages and estimate your monthly payments.
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How to qualify for a joint mortgage
To be eligible for a joint mortgage, both buyers must obtain pre-approval before completing a joint application. Lenders will want to see that you can afford a mortgage financially, so they will look at your:
- Income and maybe even take into account the length of your work
- Bank statements
- Credit score
- Other debts and liabilities
Some lenders have specific credit score requirements, but it all depends on the type of mortgage you plan to get. For example, the minimum credit score required for an FHA mortgage is 580 and at least 620 for a conventional mortgage. You can monitor and check your credit scores for free on Credible.
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With joint mortgages, all parties must qualify. Lenders can use what’s called your “ lower average score, ” which takes your three scores from the major credit bureaus and distinguishes the average score for each applicant. Then the person with the lowest average score is the one whose credit score is used to qualify for the mortgage. This is why it is important to make sure that each person has a good credit rating with all of the major credit bureaus.
Lenders will also consider your joint debt ratio, which is all of your minimum monthly debt payments divided by your total income. the recommended maximum debt ratio for most mortgage lenders is 43%.
You can visit Credible to get pre-approved for fixed rate mortgages without affecting your credit score. Credible helps you shop around for loan options among different mortgage lenders to find the best rates and terms for your home loan.
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Other factors to consider
Getting a joint mortgage may be right for you, but it’s not always the best option for everyone. Combining your income with another applicant could help you get a bigger loan, just as combining your savings and assets could help you make a larger down payment. However, if you or the other person has a lot of debt or a bad credit rating, it can hurt your chances of getting approved for a joint mortgage.
You will also need to think about how you will handle a large debt like a home loan with another person as you will also be responsible for the monthly payments. Both parties will have shared responsibility for the mortgage, and it’s important not to take out a joint mortgage if you can’t rely on the other person to make monthly payments. It’s best to make sure that you have everyone’s full confidence and that you will be transparent as you navigate the home buying process.
If you are considering a joint mortgage, the best thing you can do is start organizing your finances and researching mortgage rates. Visit Credible to connect with a home buying expert and see personalized offers for financial products like mortgages, personal loans and credit cards.
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