The Legal Implications of Joint Mortgages

Use these links to jump to different sections:

• What Is a Joint Mortgage and How Does It Work?
• What Are the Legal Responsibilities of Each Party in a Joint Mortgage?
• What Happens If One Person Wants to Sell or Refinance a Joint Mortgage?
• Joint Mortgages in the Case of Divorce or Separation
• Should You Get Legal Help with Your Joint Mortgage?
• Find an Experienced Real Estate Attorney

Homeownership is a dream that takes years of saving and planning to be ready for. You need a down payment and, most likely, a home loan. Because the home-buying process typically requires a significant investment, some people find it easier to purchase a home with help. While a joint mortgage comes with several benefits, there are a few potential drawbacks to consider.

What Is a Joint Mortgage and How Does It Work?

A mortgage is a type of loan used to buy a home. Generally, a buyer can secure pre-approval before looking for a home to buy or wait until they find one to get approved. For joint mortgage loans, multiple people will fill out the mortgage application. Co-borrowers can be a married couple, family members, business partners, or friends. When applying for such a large loan together, you need to trust the other party.

The lender will process the loan application by considering both applicant’s qualifying factors. You can secure a better interest rate and larger loan when both people have good credit scores, debt-to-income ratios, and credit histories. Having a co-borrower can also help someone with questionable financial responsibility get considered. They may not otherwise get approved with bad credit, but having a co-applicant creates a stronger application for the lender. Once approved, both applicants will sign the mortgage agreement.

Potential Benefits of a Joint Mortgage

Obtaining a joint mortgage can bring you several benefits. Having someone apply for the mortgage can help you get approved for a higher loan amount or lower interest rate. The lender considers your combined income, giving you stronger borrowing power. This could mean the difference between being able to afford the house you want or not. The shared responsibility can take the pressure and stress off one person by having someone to help you.

Alan Nochumson, a real estate attorney representing clients in a broad range of matters in Philadelphia, emphasizes an attorney’s priority to accomplish the client’s goals and recommend the right legal solutions. “From day one, we always focus our client’s attention on the end result.”

Potential Downsides of a Joint Mortgage

There are a few potential drawbacks to having a joint mortgage. If one of the borrowers has a low credit score or undesirable credit report profile, it can negatively impact loan approval or the terms. If a monthly payment is missed, it will impact everyone’s credit report. A joint mortgage does not automatically mean joint ownership. One party could take on the liability of the loan without the benefit of having a claim to the real estate asset.

Having a joint mortgage does not automatically translate to joint ownership. While both names are on the loan, they may not both be on the deed. The deed is what transfers ownership. This means they won’t get put on the title, which is the legal document identifying the real estate owner.

What Are the Legal Responsibilities of Each Party in a Joint Mortgage?

Both party’s names on the mortgage loan documents are legally responsible for the monthly mortgage payments. The mortgage lender can seek repayment from either party even if the parties agree that one will make the payments. If that party fails to, the other is still responsible. Missed and late payments will negatively impact both party’s credit scores.

What Happens If One Person Wants to Sell or Refinance a Joint Mortgage?

How you handle someone wanting to sell the property or refinance the mortgage will depend on the legal ownership. A borrower named on the mortgage is not an automatic joint owner. If someone’s name is not on the title, they are not a legal owner. A co-borrower who is not a legal owner cannot decide to sell the property. While they may want to sell to get out of the mortgage, they cannot force the legal owner to sell. They would need to pursue a different solution to remove themselves from the mortgage.

If the ownership of the property is also shared, you need approval from all parties to complete the sale. One party cannot sell the property out from underneath the other. If a co-owner does not want to sell, they can buy out the other person and refinance the mortgage to be on their own. If they can’t get approved individually, they can refinance and add a different co-borrower. If the parties still can’t agree, they can bring a claim in court and allow the court to make a ruling. Sometimes, this results in the court forcing the sale.

Co-Borrower Death

Another situation that can happen is when one of the borrowers dies. What happens to the mortgage will depend on the loan terms. Sometimes, the loan automatically passes to the surviving party. The probate court will determine the borrower and lender’s right to survivorship. Sometimes, the court will have the surviving borrower refinance. If they cannot afford refinancing the loan, the court may require the sale of the property.

Joint Mortgages in the Case of Divorce or Separation

Most first-time home buyers are married couples who seek to purchase their home together. As part of this, they seek a mortgage together. While no one wants to think about it, many marriages end in divorce. The joint mortgage will be addressed during the divorce proceedings. One option is to leave everything untouched, with one spouse taking over payments. Many couples do not choose this option because it leaves the other spouse potentially liable for a home they no longer live in. When deciding what to do with the property, consider more factors than just mortgage rates. There are also maintenance costs, property taxes, and potential federal tax benefits to consider.

1. Sell Your Home

A common solution is to sell the home. This happens when the parties can’t agree on who gets to keep the home. When selling the home, the couple will split the proceeds left over from paying off the mortgage.

2. Refinance Your Mortgage

Another solution is to refinance the mortgage. This is a common solution when one spouse is going to keep the home. The staying spouse will refinance with the lender to remove the leaving spouse and put the mortgage solely in their name. Doing so removed the responsibility and liability from the other spouse. When taking this route, homeowners need to also look at the title. The leaving spouse needs to also be removed from the title. Otherwise, they are still a legally listed owner of the property. You can perform a quit claim deed to remove the one spouse.

Depending on how long the couple has owned the property, a significant amount of equity could be built up in the home. The leaving spouse may want their share of the property. To do this, the staying spouse could pay the leaving spouse their half of the equity.

Should You Get Legal Help with Your Joint Mortgage?

You don’t need a lawyer to apply for a joint mortgage. You can fill out the loan application with the person you are applying with. Once approved, review the loan documents and sign them. Speaking with a real estate lawyer can be helpful if you are not confident doing this on your own. Their real estate and legal experience can help you avoid unfavorable terms.

Have the lawyer review the loan documents and explain any terms you don’t understand. A lawyer can help you before you even apply. There may be other legal options to accomplish what you want to achieve without seeking a joint mortgage. Talking with a lawyer about potential issues early on can help you avoid issues later on. If an issue does arise, a lawyer can help homeowners find the right solution for the situation.

Nochumson highlights the importance of finding and hiring a reputable real estate attorney for your legal matters. “Everyone knows everyone where I practice law in the Philadelphia region. That helps people with good reputations and probably doesn’t help people with bad reputations. Luckily, we have a good reputation. We’re known for knowing the law, being reasonable, and being good advocates for our clients.”

Find an Experienced Real Estate Attorney

Speaking to a lawyer can help you decide if a joint mortgage is right for you. They can also help you decide what to do if you have a joint mortgage and need to change it. Your lawyer can guide you through your legal options for how to handle changing a joint mortgage. Your lawyer may also be able to highlight additional factors to consider that may impact your decision.

Visit the Super Lawyers directory to begin your search for an experienced real estate attorney. For more information, read our guide on real estate law.