Joint mortgages can increase loan eligibility, but they come with some potential pitfalls, as all parties are liable for the loan. This type of financing is commonly used by married couples purchasing homes, but it can also be used by friends or partners to buy businesses and other real estate. Before entering into a joint mortgage, it is advisable to read the contract carefully, discuss the loan with the partner, and determine whether it is the right choice for a given situation. It’s also important to be aware that having a joint mortgage doesn’t mean both names are on the property title.
The obvious advantage to taking out a joint mortgage is that the income and assets of both parties are considered on the application. People who plan to share expenses anyway may want to qualify for a larger loan than they could afford on their own in order to buy a property that meets their needs. In other cases, someone might need help qualifying for a loan, and could enter a joint mortgage to get the necessary financing or qualify for better interest.
There may also be a psychological advantage to a joint mortgage. People tend to feel more settled in a partnership with shared financial obligations, whether they are business partners or people preparing to get married. The joint mortgage can be a mutual symbol of commitment.
One big drawback is that everyone on the mortgage is liable for the debt. If one party defaults, the other will need to step in to cover the costs of the loan. People preparing for a joint mortgage may want to consider what they would do if their partner didn’t make payments for one or more months. It can also sometimes be difficult to change the terms of a mortgage, which means that someone may be stuck on the loan after a partnership is dissolved.
Another issue, structured into some loans, can be liability for other debts. Typically it is not acceptable to use the same asset as collateral for multiple loans, but this can occur. If someone in a joint mortgage uses the home to obtain financing outside the mortgage and then defaults, the bank may be able to seize and sell the home. People should read the terms of the loan carefully and make sure the real estate cannot be used to finance another loan, leaving the primary lender as the only creditor with the ability to seize it.