3 Disadvantages of a Joint Mortgage

A joint mortgage allows for two persons to co-borrow on a loan. Joint mortgages are often used for couples and families to combine incomes in order to generate a higher loan amount. Mortgage companies will consider the incomes of two persons instead of one, allowing for a greater amount of funds to be extended. In return for this benefit, borrowers on a joint mortgage must be prepared for what joint debt can mean to their financial situation.

#1 Higher Income Borrower takes Priority

The first thing to understand is a joint mortgage does not use both parties equally on the application. In most cases, there will be a primary borrower and a co-borrower. The primary borrower is almost always the person with the higher income, even if that person has a lower credit score. You do not get to choose whose credit you would like to use on your application. The bank or mortgage lender will make the decision for you based on who has the greater income.

In addition, the lender will base the interest rate they offer on the score of the lower party. If the payment increases significantly, you can elect to leave that person off of the loan, however, you will ultimately receive a much lower loan limit as a possible loan amount. The reduction in loan amount is due to the lender only using one income, instead of two.

#2 Single-Ownership Provisions

Even though both parties are sharing in the obligation of debt on the home, it is common for a mortgage to allow only one primary owner of the property. This means you will need to negotiate if you would like to have the mortgage ultimately result in ownership split between both you and your co-borrower.

Further, if your joint mortgage does not provide for a single survivor option after death, then you may end up having to take the issue to court. This means, if one person on your mortgage passes away, you will have to file to have the deed to the home and the burden of the mortgage passed to the single survivor of the partnership. This can be an additional hassle at a time when no hassle is needed. Protect against this problem by placing a single survivorship option in your home deed.

#3 Split Debts in Divorce

The biggest challenge of a joint mortgage comes if the two applicants separate, divorce or otherwise end their partnership. If the mortgage has been paid off, then one member of the original application will have to decide to relinquish ownership in the home. The other party can buy off this owner or settle the issue in court.

If the mortgage is still active, however, there is a complicated process to split the debt between the two parties. In most cases, the mortgage company will ask the co-borrowers to pay off their debt or modify the mortgage. This can result in the necessity to sell the property in order to pay the debt in full. Very few co-borrowers go through a debt-splitting process without a large amount of stress and high legal fees.