Mortgages as Joint Tenants

Buying a home with someone else is a big commitment. It’s not the same as signing a lease with a roommate where, at worst, you’ll both be stuck with a one-year lease. When you take out a mortgage with joint ownership, you put yourself in a long-term contractual commitment, so it’s important to understand the repercussions if it doesn’t work out.

When you apply for a mortgage on a home, you need to meet certain requirements. In addition to a down payment, your lender will require a minimum credit score and a strong income-to-debt ratio. On your own, that can be tough, but if you join forces with someone, you may be able to swing it.

In most cases, joint tenants on a mortgage are either in a romantic relationship or related to each other somehow. In some instances, though, friends may decide to share a mortgage. Whatever the relationship before taking the mortgage, however, it’s important to fully understand what’s involved in any type of joint mortgage.

When you take out a mortgage with a spouse or life partner, you’re likely tied together in many ways. You may share a bank account and even some credit cards. You already understand that what one person does affects the other person’s credit, too.

If you have a mortgage for joint ownership with someone who isn’t your spouse or life partner, you may not think about the repercussions for your credit report. If something happens to the other person’s income, you’ll be responsible for swinging the entire payment yourself. Whatever happens with that mortgage will affect both credit scores, not just your co-mortgagee.

In a rental, if you and your roommate don’t work out, one of you simply moves out. In many cases, you can either stay there alone, if you can afford the rent, or bring in another roommate. With a joint tenants mortgage, though, you’ve signed a binding contract that likely lasts at least 15 years, with the only way out being to put it up for sale.

There is another way out, though. As with a lease, you may be able to stay if your joint tenant decides to leave, but there will be two things you’ll have to do. The first is to refinance the mortgage in your name only, which means you’ll need the income and credit score to qualify on your own. The second is to file a quitclaim deed and pay taxes and closing costs related to transferring it to your name.

There are two crucial elements in a joint ownership on a home: the deed to the house and the mortgage. If you’re dividing the joint tenancy, you’ll need to take care of both. Most important of these two, though, is the mortgage since the lender will come to the other party if one stops paying.

Unlike dealing with issues like your quitclaim deed and taxes, the refinancing process is going to involve a stack of paperwork, as it did the first time around. The departing person may not be satisfied with simply turning the house over to you, though. You may need to give the other person half of the equity in cash, which could involve an appraisal and possibly require taking an additional loan to pay that amount.

When you refinance the mortgage, that takes care of the payment part of the agreement. However, your names are still both on the deed, which comes with repercussions for you. If your name is no longer on a house’s deed, you won’t have any responsibility for what the owner does from that point forward.

The quitclaim deed process is fairly straightforward, simply shifting one person’s interest in the property to the other person. Quitclaim deeds and taxes have no connection, so you won’t have to worry about reporting it on your tax return. However, if you’re used to getting tax relief in the form of property tax deductions, you’ll need to be aware you’re losing that benefit, unless you buy another house with the money you made from your share of the equity.