It’s pretty common for couples to apply for mortgage financing together. However, if the relationship dissolved or if a partner is interested in applying for a line of credit on their own — legally, who really owns the home when there are two names on the mortgage?
Here is what you need to know:
Title vs. Mortgage
Remember, when you are talking about home ownership, it’s important not to mix up these two terms, or use them as substitutes for each other.
Title: The rights of ownership to a specific piece of property, documented by recording the deed.
Mortgage: The money you borrow to finance a property and the agreement to pay it back.
Applying for a Mortgage Together
There are many things to consider when applying for a mortgage with your partner. In most cases, you're trying to qualify for the maximum amount of money with the lowest interest rate. But lenders don’t just take the best credit score and run with it.
Here is how it works:
First, the mortgage lender will do a “hard hit” on each person’s credit history. Then, they take the average number from the three main credit reporting agencies to get an official score.
Hoping your partner’s great credit score will bail you out? Think again. Typically an agency will use the lowest score when establishing qualifications for the loan amount and interest rates.
But don’t panic!
Sometimes, including your partner in spite of their lower score can still result in a better deal. This is due to two incomes on the application instead of just the one with a better score. Ask your lender to consider all the options to determine the best scenario.
The Final Say
If you do decide that the best financial decision is to keep your name off of the mortgage, don’t panic.
As mentioned, to be considered an owner of a home, your name need only to be included on the deed.
However, it is important to make sure to have the “non-paying” partner’s name is on the title at closing. As lenders will often refuse title changes until the mortgage is paid off (which could be 15-30 years) or require refinancing.
If you are the “paying partner” meaning that your name is the only one on the mortgage, in the lender’s eyes, you are solely responsible for delivery of the payment. This is important to keep in mind if ever you decide to divide assets or tap into future equity in the home.
Each state has their own laws in regards to marital assets and entitlement of ownership, so it may be helpful to familiarize yourselves and decide if you need to include an additional private agreement.
Are you and your partner looking to purchase a new home? Our professional, helpful Realtors know the best lenders in town and are happy to make recommendations. Contact us today!