With nearly every homebuying endeavor, the mortgage is one of the most critical elements that can make or break the dream of home ownership. It's a huge decision, and one that real estate agents encourage their clients give long, hard thought to. A joint mortgage is one where two or more people collectively apply for a mortgage instead of just one, which is why it's quite commonly preferred by married couples. While it's less common for friends and family members to apply for these types of loans, it's certainly not impossible. In either circumstance, all involved parties agree to the terms and conditions of the loan, and each are equally liable for it, unlike an individual mortgage where only one person is responsible for the loan.
What Factors Go Into A Joint Mortgage Application?
There are three main factors that are considered in your joint mortgage application:
- Credit history
When you apply for a joint mortgage, your individual income and financial assets are combined into one lump sum. For example, where you once could be approved for maybe $150,000 by yourself, you can now approved for $350,000 collectively. That alone could be the difference between buying an antiquated fixer-upper and a brand new home. However, the same practice is applied to your debt as it is your income, so if you have loads of student debt and your spouse has a little, both debts are added up and factored into the application. Also, if you have a credit score of 600 and your spouse has a score of 750, the lower of the two (your 600) is the one that will be factored into the loan.
Why Would Someone Choose A Joint Application Over A Single One?
Joint mortgages are especially handy when you have a strong income but have a lower credit score and your partner has a great credit score and low income, or vice versa.
Pros of Joint Mortgages
- Better buying power: You'll have more money together to, ideally, buy a better/more expensive place.
- Smaller down payment per person: Instead of trying to come up with 20% yourself, you could pay 10% and your friend could pay 10%, making it much more realistic of a goal, especially for new homebuyers.
- Better affordability: You share the responsibilities of the mortgage and paying for it.
- Helps people get a mortgage that couldn't on their own. You might make enough, but your sister doesn't. This way you can both start building up some equity.
Cons of Joint Mortgages
- Friends don't say friends forever, people break up, and divorces happen. It's never nice to think about, but these things do happen even if you don't expect them to. A mortgage can be a very long-term commitment, how sure are you that you'll be friends with this person for another 30 years?
- Someone wants out: You have the option of buying the other person out or you could be forced to sell the home against your will.
- Someone loses their employment: If someone else can't make their payments, then you're on the hook to cover the payments for them.
- It could hinder your ability to be approved for more loans in the future.
Be Prepared Before Entering In On A Joint Mortgage
The best advice anyone could give is to be prepared for every possible outcome. What if your friend or partner wants out of the loan? What if they just stop paying, or lose their job? Getting some legal advice before being approved for the mortgage can help you plan for worst-case scenarios so that if they happen, you can be prepared to deal with them.
For any type of mortgage, it's extremely important that you seek professional lending advice before signing on the dotted-line. As your Ridgewood real estate agents, we'd be happy to recommend our preferred lenders and those we trust most in the area to help you with any and all of your financial needs. Send us a message online today or call us at 201-444-0690 for more information.