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Obtaining A Joint Mortgage or Shared Home Ownership

Thursday, Oct 1, 2009

If you're thinking about buying a home, chances are you're not planning to do it by yourself.So how do you go about getting a mortgage or buying a home by two or more people? There are two main ways to do it - either through a joint mortgage or by joint ownership

If you're thinking about buying a home, chances are you're not planning to do it by yourself. Most home purchases are two-person affairs - historically, by married couples but with unmarried partners making up an increasing share these days. In some case, two or more people who are not romantically involved will purchase a home together for financial reasons.

It's a bit more complicated than it used to be, when a couple would buy a home, but the husband was the sole breadwinner whose income and credit rating determined the terms of the mortgage. But having two incomes paying on a single mortgage definitely opens up more possibilities in terms of what you can buy.

So how do you go about getting a mortgage or buying a home by two or more people? There are two main ways to do it - either through a joint mortgage or by joint ownership. In the former, both parties (we'll assume it's a couple and not a larger partnership for now) are signatories to the mortgage and are equally responsible for making payments. In the latter, the mortgage may be in only one person's name, but both parties have their name on the deed and contribute toward making payments.

Credit score is usually based on highest earner

When two people apply for a mortgage together, the lender typically considers the credit rating and history of the person with the highest income in deciding whether to issue the loan and what the terms will be. In some cases a blended score may be considered, but this is less common.

The key thing is, while the terms of the loan are based on the credit of the partner with the highest income, both partners are equally responsible for the entire loan. You're not just each responsible for coming up with 50 percent each month - if your partner comes up short, you're fully responsible for covering the difference.

Because some lenders do use blended credit scores and income data, couples doing a joint purchase will sometimes apply for a mortgage in one partner's name only, the partner with the higher credit rating and income. They then put both names on the deed (although only one remains on the mortgage itself), and both contribute toward the monthly mortgage payment. However, this only works if the one partner can fully qualify for the mortgage by himself or herself, and you probably won't be able to borrow as much as you would if both incomes were listed on the mortgage.

Pitfalls if the relationship ends

Both approaches can present difficulties if the marriage or partnership ends, or if one person in the arrangement doesn't hold up his or her end of the bargain. In a joint mortgage, as noted above, both parties are 100 percent responsible for the mortgage. In the case of a divorce, one party typically signs a quitclaim deed handing over ownership to the other - but that doesn't eliminate their responsibility for the mortgage. The partner who gave up ownership can still be held liable if the other defaults on the mortgage. True, they no longer have to worry about losing the home, but the foreclosure can still ruin their credit for years to come.

The only way to get out of this is to refinance the mortgage into a new loan that is only in the name of the partner who ended up with the property. However, with housing prices down as far as they are these days, that might be difficult or impossible for many split-up couples to do, particularly if a second mortgage is involved.

When the mortgage is only in one partner's name, a different problem can arise - that partner is still liable for the full mortgage, even though their ex is no longer making payments, and may have declined to sign a quit claim deed surrendering their stake in the property.

Fortunately, these issues can frequently be addressed during divorce proceedings, but for unmarried persons, they can be particularly thorny. For that reason, it's a good idea to draft an official agreement beforehand spelling out how ownership and mortgage issues will be settled in the event the partnership splits up.

Problems faced by survivors

Unmarried persons can also run into problems should one partner die. Although widowed persons typically inherit their late spouse's property automatically, partners sharing joint ownership typically don't inherit their partner's share in the property unless it's specifically spelled out in a will. Even in the event of a joint mortgage, a surviving unmarried partner could end up losing their partner's share to blood relatives unless their partner specifically left the property to them in a will.

In some cases, three or more persons will jointly obtain a mortgage for or share ownership of a residential property. This is fairly common among some ethnic groups where several families will purchase a home together as they establish themselves in this country, and also sometimes happens among friends who have decided to share a residence together. The advantages and pitfalls for them are similar largely the same as those faced by unmarried partners.

 

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