When you think of more than one name on a mortgage application, you probably assume it’s a married couple. However, there are lots of other people who enter into buying a home together – siblings, parents and their children, extended family, non-married couples, and even friends. This is known in the industry as a joint mortgage.
On the positive side, sharing the burden of a home loan can make homeownership accessible to those from whom it might not be possible alone. However, making a big commitment as complex as sharing a home and a mortgage means you have a long-standing financial obligation to each other, so you want to be certain that you are fully prepared before entering a joint mortgage.
We connected with Mike Venable, head of underwriting at TD Bank for his thoughts on home sharing to help you decide if it’s an option worth exploring.
The Pros of Co-Owning a Home
Venable’s quick take is that more borrowers makes loan qualification easier.
“With more challenging lender standards when it comes to credit score, debt to income ratio, etc., it’s easier to qualify if you bring in more income to offset the debt,” he explains.
If all of the new borrowers will be occupying the new home together, you also get to share expenses such as splitting the utilities. Having joint ownership helps offset some of the big expenses of owning a home, says Venable.
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.
The Cons of Co-Owning a Home
While joint ownership of a home is a great idea in theory, it only works if all parties are on board and willing to keep up with the financial commitments. If not, it will cause headaches and disagreements down the road, which may need to be remedied with attorneys or through the courts.
“It’s much more difficult to walk away from a mortgage when you have more than one borrower,” says Venable. One person can try buying the other out and then try to refinance, but either individual might not be able to qualify on his or her own.
The big issue is if one of the homeowners suddenly can’t or won’t pay his or her share of the mortgage payment. That will ultimately affect all parties and could result in damage to your credit score or even foreclosure. “You may be responsible for only part of the mortgage, but if your partner doesn’t pay, there is potential credit damage for you. Ultimately, any delinquencies would be hitting both of you, not just one,” says Venable.
In short, pursuing a joint mortgage to buy a house with your parents, friends, or other family members can be a great idea if all parties involved are equally responsible and financially prepared.
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 spider webs.
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.
Joint Ownership Examples
There are no lending rules against purchasing a home with someone who is not your spouse or family. Some common relationships that co-own a house together are as follows.
- An adult child buying with his or her father, mother, or step-parent.
- Co-ownership with a fiancé, fiancée, boyfriend, girlfriend, or partner.
- Two individuals owning an investment property together.
- Two married couples buying a rental property.
- Two or more families buying a large home to live in together.
These situations are just to name a few. All of these and more are permitted with current lending rules.
Qualifying for a Shared Mortgage Loan
As far as qualifying for a home loan with another person signed on, the process is much the same as it would be otherwise, says Venable. “We look at every application the same way based on our product guidelines, and we look at the big picture. We factor in credit score; we look at a two-year history of income for both wage and self-employed borrowers; and we look at debt-to-income ratio,” he explains.
Ownership Agreement for Co-Owners
Although Venable is not in the business of giving legal advice, he’s seen those who go into home sharing situations have agreements drawn up by a lawyer so it’s specifically laid out as to who is responsible for what. For example, there could be different percentages of ownership, and therefore, that might affect how the loan is paid back. In the case of an unmarried couple that breaks up, how will that work? In other words, it’s a good idea to really have a plan in place that’s outlined in writing before you move forward with such a transaction.
Consider hiring the services of an attorney to help you lay the framework for the rules surrounding your joint mortgage.
Co-Ownership Mortgage Loan Programs
In home sharing situations, Venable says most borrowers seek fixed-rate conforming loans. “Most people like the longer-term stability over time, especially now because rates are so low,” he says. In some situations in which the parties know they don’t plan to stay in the home for a long time, they might choose an adjustable-rate mortgage for five, seven, or 10 years.
Specialty loans like the VA Loan program wouldn’t work since those are geared toward active military and/or veterans and their spouses. And FHA is mostly used by married couples as opposed to non-married borrowers, says Venable.
All in all, home sharing offers an opportunity for many folks to stop paying rent and become a part-owner of a home. “Just make sure there’s a trust factor and an understanding of expectations,” says Venable. As long as you’re comfortable with your co-owners, buying a house jointly with parents, friends, or your spouse could very well get you into your dream home a lot sooner than if you were on your own.
Can I get a joint mortgage with my parents?
Yes. In fact, individuals buying a house jointly with their parents is one of the most common co-owned mortgage pairings out there. Keep in mind that doing so may require adjustments in communication regarding financial obligations, and even lifestyle if you choose to co-inhabit the house.
Can my mom and I buy a house together?
Absolutely. You can co-finance a house through a lender with one or both parents. Under current lending regulations, you can even jointly buy a house with the support of someone who is neither a family member nor a spouse.
How do you buy a house with two owners?
Purchasing a house with two owners begins by qualifying for a joint home loan. The process is similar to applying for an individual loan. One fundamental difference is that, in a joint mortgage application, both applicants’ incomes and assets are considered in combination with one another. This can be beneficial if neither income alone meets pre-qualifications for the mortgage you are pursuing. However, if your partner has a bad history credit or lots of debt, this can negatively affect your personal standings.
Can two families buy a house together?
Yes. Many lenders allow two families to combine their respective incomes in order to jointly purchase a house. Both households will need to meet the minimum qualifying loan requirements, which may vary lender to lender. Lenders may also require both families to hold equal ownership rights of the house. Matters such as property use, expenses, and title are best negotiated in advance through the mediation of attorneys.
Can I borrow money from my parents to buy a house?
Many first-time home buyers borrow funds from their parents. It is what is commonly known as a private home loan, a private mortgage, or an intra-family mortgage. Choosing to borrow from your parents can confer certain advantages, such as zero prequalifications, low-interest rates, the flexibility of payment, and even tax deductions. Nonetheless, before asking for a loan, it is wise to come prepared, at the very least, with exact amounts, tentative payment schedules, and the specifics of your chosen property.