Joint ownership of a home makes the most sense for borrowers who share financial interests in a home. Whether married, unmarried or related by family or business, borrowers who take out a mortgage together hold some form of joint ownership. You must research the best manner of taking ownership based on state laws, your individual financial circumstances and goals before signing final mortgage documents.
Joint Ownership Benefits
Joint ownership gives mortgage borrowers shared rights to the home. Joint ownership can restrict individual owners from selling, refinancing or transferring ownership rights to others without the other owner's permission. When you enter into a mortgage agreement with a lender, the lender requires each borrower to put their names on the title. Because the home acts as collateral for the loan, the lender can deprive all borrowers of their ownership rights through foreclosure if they default.
Married borrowers in community property states have equal rights to property obtained during marriage. They can hold title as joint tenants in community property states or, in other states, tenancy-by-the-entirety. Tenancy-by-the-entirety protects each spouse's interests by requiring permission from each owner to sell, transfer or mortgage the home, much like community property laws do. It also allows a surviving spouse to keep the entire property if the owner-spouse dies. Joint tenancy with right of survivorship gives a surviving owner a deceased owner's undivided share of the home. Tenancy-in-common allows a deceased owner to pass his share of the property to heirs or beneficiaries upon death. Tenants-in-common have divided ownership interests: they can own unequal shares, which they may sell, mortgage, will or give away with the other owner's permission.
Co-Borrowers and Co-Signers
A primary borrower takes out a mortgage with another borrower, or co-borrower, to use their income and assets to qualify for the loan. The lender makes co-borrowers equally responsible for repaying the debt and requires them to each hold an ownership interest in the home. Co-signers, who act as guarantors for a loan but usually do not live in the home, have no ownership rights. They are generally relatives with more income and better credit that can boost the credibility of a borrower and co-borrower. Although the lender can hold a co-signer equally responsible for repaying the debt and ruin the co-signer's credit if she defaults, a co-signer is not a joint owner.
To get joint ownership when taking out a mortgage, the borrower and co-borrower must both apply and indicate on the application how they intend to hold title. The escrow company handling the refinance or sales transaction and the title insurance company can clarify the meanings and differences between the various types of joint ownership. However, consulting with a lawyer and tax preparer to analyze the advantages and drawbacks of each type is recommended. The lender prepares the mortgage loan agreement and the title company prepares the title deed to reflect the type of joint ownership held. Borrowers and co-borrowers sign these legal documents at closing in front of a notary public.
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