When two or more people apply for a mortgage together, this is referred to as a joint mortgage. A joint mortgage, however, is not the same as joint ownership of a home: Ownership is determined by how the home is deeded, while a joint mortgage specifies who is legally responsible for repayment of the loan.
Joint mortgage basics
The main benefit of a joint mortgage is that it may enable home buyers to qualify for a larger loan and therefore purchase a more expensive home. This is because the combined incomes of all the applicants are considered by the lender when reviewing the mortgage application. All the applicants’ payment histories are also considered, so if one applicant has credit problems, another applicant’s strong credit history may help compensate for this.
Married couples often apply for joint mortgages so that they might qualify for a larger loan and/or to compensate for credit problems one of them might have. Another common scenario is an older married couple that is nearing retirement age but having trouble qualifying for a mortgage, due to the limited number of years that they plan to continue working. However, individuals don’t have to be married in order to apply for a joint mortgage. Friends, other family members, cohabitating partners and business partners may also apply for a joint mortgage.
From a legal standpoint, all applicants on a joint mortgage are equally responsible for repayment of the loan. Therefore, you should be very careful when deciding with whom you will apply for a joint mortgage. The full amount of the mortgage must be paid every month; if your co-applicant(s) fail to make their share of the payments, you will have to make up the difference or else face possible repossession of or foreclosure on the home.
Home ownership options
Ownership of a home purchased via a joint mortgage can be structured in one of two ways:
- Right of survivorship: This is usually the most common ownership structure for married couples. If one spouse dies, ownership of the home will automatically revert to the surviving spouse, who needs only to produce the joint survivorship deed and a death certificate to prove and secure ownership.
- Joint tenants in common: With this structure, rather than ownership automatically reverting to the co-applicant(s) if one applicant dies, the deceased applicant’s portion of ownership will go through probate court, where ownership will be decided.
In the case of divorce, one spouse may quitclaim the deed of the home to his or her ex, signing away any personal interest in the home. However, if the spouse who retains ownership does not continue making payments on the mortgage, the ex-spouse can be held liable along with the owner, even though the ex no longer has any ownership rights.
The legal and technical ramifications of joint mortgages can be complex, so it’s smart to consult with an attorney and/or financial advisor before applying for a joint mortgage. We can also provide advice and assistance if you are interested in a joint mortgage. To learn more, please contact us.