Benefits of Adding Someone to Mortgage

When you’re considering a home purchase or looking to refinance your current mortgage, deciding whether to add someone else to your mortgage is significant. This could be a spouse, a family member, or a trusted friend.

When it comes to purchasing a property, often times one person may not qualify for the full loan amount or may need additional help with making monthly payments.

In these situations, adding another person (such as a spouse, parent, or family member) to the mortgage can have several benefits for both parties involved. In this article, we will discuss the benefits of adding someone to mortgage and why it may be a smart financial move for you.

What Are the Benefits of Adding Someone to Mortgage

Joint Ownership

Joint ownership is one of the main benefits of adding someone to a mortgage. By having multiple individuals on the mortgage, you share ownership and responsibility for the property.

This means that both parties will have a legal claim to the property and are equally responsible for any payments or liabilities associated with the mortgage.

This can be especially beneficial in unforeseen circumstances, such as job loss or illness. With joint ownership, there is someone else who can help shoulder the financial burden and ensure that mortgage payments are made on time.

Increased Qualification Chances

Adding someone to a mortgage can also increase your chances of qualifying for a larger loan amount. Lenders will take into account the income and credit scores of all borrowers on the mortgage application.

This means that if one borrower has a lower credit score or income, adding another person with a higher credit score or income can help boost your overall qualifications.

This is particularly useful for first-time homebuyers or those with lower incomes, as it can help them afford a larger property or secure a better interest rate.

Shared Financial Responsibility

One of the biggest benefits of adding someone to a mortgage is sharing the financial responsibility. By having another person on the mortgage, the burden of making monthly payments and paying off the loan is shared.

This can be especially helpful when one person may not have the financial means to cover the entire mortgage on their own. With shared responsibility, there is a safety net and someone else to rely on if needed.

Building Credit Together

Adding someone to a mortgage also has the potential to impact both parties’ credit scores positively. By making timely mortgage payments, both borrowers’ credit scores can improve, opening up opportunities for better financial options.

In cases where one borrower may have a lower credit score, being added to a mortgage with someone who has a higher score can help them build their credit and potentially qualify for better interest rates on future loans.

Tax Benefits

Owning a home comes with certain tax benefits, and adding someone to a mortgage can help maximize those benefits. By sharing the tax deductions for mortgage interest and property taxes, both borrowers can potentially save on their overall tax bill.

However, it’s important to note that both parties must meet certain criteria in order to claim these deductions. It’s recommended to consult with a tax professional or accountant before making any decisions regarding shared tax benefits.

Better Interest Rates

Having more than one person on a mortgage can also lead to better interest rates. Lenders often see added borrowers as less of a risk since multiple incomes and credit histories are involved.

This can result in a lower interest rate, saving both parties money over the life of the loan. It’s important to compare different lenders and their rates to ensure the best deal for all parties involved.

Estate Planning Advantages

If you add a family member to your mortgage, it can simplify matters of estate planning. Since the co-borrower has a legal right to the property, it can pass directly to them without getting tied up in probate following one’s death, provided the appropriate legal documents are in place.

This can provide peace of mind for both parties and prevent future disputes or complications.

Things to Consider Before Adding Someone to Your Mortgage

While there are many benefits to adding someone to a mortgage, it’s important to carefully consider all aspects before making a decision. Here are some things to keep in mind:

Shared Responsibility

Adding someone to your mortgage means that both parties are responsible for the loan repayment. This includes any late payments or potential default on the loan.

Financial Stability

Consider the financial stability of both parties before adding someone to a mortgage. If one person loses their job or faces financial difficulties, it could put a strain on the other’s finances.

Relationship Stability

Financial arrangements can strain even the strongest relationships. Before adding someone to your mortgage, consider the stability and longevity of your relationship. Remember that both parties will be legally tied to the property and the debt.

Credit Score Impact

The co-borrower’s credit score and history will also be taken into consideration by the lender.

If either party has a poorer credit score, it could negatively affect the terms of the mortgage. Ensure you both understand the impact of your credit scores on your application.

Potential for Financial Disputes

Money can often be the root of conflict. Be clear about how mortgage payments, maintenance costs, and other expenses will be split and plan for potential changes in circumstances.

Difficulty in Removing Names

Removing someone from a mortgage isn’t as simple as adding them. It typically requires refinancing the loan, which comes with its own set of costs and qualifications.

How to Add Someone to Your Mortgage

Remortgaging

The most common way to add someone to your mortgage is by remortgaging. This involves breaking your current mortgage and taking out a new one with the co-borrower’s name included.

Joint Mortgage Application

If you are purchasing a property, you can apply for a joint mortgage from the start. This means both parties will be equally responsible for the loan from the beginning.

Transfer of Equity

For existing homeowners, a transfer of equity may be an option. This involves transferring ownership to both parties and adjusting the mortgage accordingly.

Talk to Your Existing Lender

Before making any decisions, it’s essential to speak with your current lender. They will be able to advise you on the best course of action and what options are available to you.

Conclusion

The process of adding someone to a mortgage is a big decision with many factors to consider. While there are numerous benefits, such as potential for better loan terms and shared financial responsibility, there are also risks and legal implications.

Before making this important financial decision, weigh the pros and cons carefully, discuss the situation with all parties involved, and seek counsel from financial and legal professionals.

With proper planning and clear communication, adding someone to your mortgage can be a step toward greater financial strength and security.