As home prices increase it is not uncommon for homebuyers to purchase a home with another party. But how many names can you have on a single mortgage?
The answer to this question is that there is no actual legal limit as to how many names can be on one single home loan. The sticky part of this situation is getting bank or mortgage lender approval for multiple applicants or borrowers on the same loan.
Somewhere around 90% of mortgages in the United States are backed by the federal government entities of Fanny Mae and Freddie Mac or even Ginnie Mae. Fannie Mae supports an automatic underwriting tool called the desktop underwriter. This is what most banks go to in their measurements to determine whether they will approve or deny a mortgage application. Lenders plug information into this underwriting system and it is then processed and analyzed to get a determination of eligibility.
Though there is no legal limit each bank or lender is going to have their own particular applicant limits for loans that they will approve. For example, some lenders will allow a maximum of four clients on any single loan transaction. Another example is that VA loans with national VA loan guidelines only allow for a veteran and his or her current spouse to be on a mortgage application and on an approved mortgage.
Why would someone want to include more than one name on a mortgage unless they are married?
There are a few reasons that borrowers may want to include more than one name on a mortgage when they are applying for funding to purchase a home
Applying with a co-borrower might make it easier to get approval on a loan if the co-borrower has great credit and a steady income. It can help strengthen the loan application and make it appear that you are less of a risk to loan money to which increases your chances of loan approval.
Applying for a mortgage loan with a co-borrower allows you to put the other person’s name on the title as well. This is very important if you plan to jointly own the home.
Something important to remember: any borrower on the loan is wholly responsible for loan payments if the other borrower stops paying for their part of the loan payment and must continue to pay each payment on time to avoid damage to their credit or losing the property.
Can you remove a name from a mortgage?
It is possible to remove a name from a mortgage, however, it doesn’t mean it is easy. Many lenders won’t be excited to take someone’s name off of a loan as it means there is now one less person responsible for paying the loan back. If a lender is willing to take a name off of a loan you may likely have to re-qualify for the loan on your own. If you have an assumable loan this process can be a little bit easier.
Another option in removing a name from a mortgage loan is to refinance the loan just like you would any other mortgage.
How can you protect yourself as a co-borrower on a mortgage loan?
Before you agree to apply for a mortgage with other people it is a good idea to make sure you know all that you can and your options for protecting yourself. It is a good idea to consult with a business or real estate attorney to help explain your options, your risks, and your responsibilities in becoming a co-borrower on the loan.
If you are becoming a co-borrower in an investment property with friends or family members forming an LLC can help protect members from liability if there is a dispute or lawsuit in regards to the investment property or if someone stops paying their portion of the mortgage payments and wants to sell the property when you want to retain it. If you are forming an LLC after getting preapproval on a mortgage it is a good idea to see if forming this LLC will inhibit your ability to qualify for the mortgage that you were seeking as some lenders will see this as a deal-breaker for final approval.
For more information on your mortgage options in Mission Viejo and surrounding areas please contact me any time.
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