Lenders are accustomed to one or two people applying for a mortgage. They have processes set up to pull credit reports and gather income data to determine whether loans should be put through using the financial information for one person or both. Although it’s rare, there are occasions when three or more people will ask to take out a mortgage loan together to buy a home. If you’re in that situation, it’s important to understand what is involved before you approach a lender.
While there is no limit to the number of names that can be on a mortgage, each applicant will need to qualify for the mortgage to be approved.
Mortgage Versus Title
It can be easy to confuse the home’s title with its mortgage. The mortgage doesn’t necessarily define homeownership. It merely outlines who will be paying back the loan. If you’re worried about being protected in the event something happens to the other people living in the home, putting your name on the mortgage isn’t the best protection against that. You generally can assume the mortgage if the other party on the title dies, especially if you were married.
The title, or deed, is the document that establishes ownership of a house. There is no limit on the number of people who can be on a property title, which is why timeshares are allowed to exist. Having multiple names on your property title might be enough to solve whatever issue you were trying to resolve by putting multiple names on a mortgage.
Reasons for Multiple Names
There could be a variety of reasons to have multiple people on a mortgage. An aging parent might live with her adult children, for instance, or parents conversely may want to have a live-in adult child listed to position him to take over the payments once they’re gone. Three or more friends might buy a home together to defray the high cost of monthly payments, and having all names listed spreads the responsibility equally.
Homebuyers might also put more than two names on a mortgage if they join together to buy a vacation home. Multiple investors, for instance, could agree to go in on a rental house in Florida, splitting the cost and alternating the use of the property throughout the year. Three or more parties also might join to buy a rental property for an investment.
Requirements for Multiple Names
If you’re bringing a third (or fourth or fifth) party in because you’re concerned about your credit rating, you might be disappointed. Every person on the loan will have his credit and income information included in qualifying. If you have a credit score in the 400s, the lender probably will opt to leave you off the mortgage, especially if the others applying with you have stellar credit scores and strong debt-to-income ratios.
You also could back into the situation. Say you applied for a mortgage and you and your partner lacked the debt-to-income ratio necessary to make the monthly payments for the house you want, despite having strong credit scores. Adding a third person’s income could boost that ratio enough to qualify all three of you together for the loan.
Risks of Multiple Names
Even if you can have three or more names on your mortgage, does that mean it’s the best choice? It’s important that every person who applies for the mortgage fully understands the ramifications. If one of you changes your mind later, the only way to remove that person's name would be to refinance the loan. If you’re the one who decides you want out, the other parties on the loan would need to agree to go through a refinance.
Instead of adding multiple names, consider having a relative act as a co-signer on the loan if qualification is your problem. If you’re buying a vacation home and want to ensure everyone holds up his of the deal, a mortgage in one name with a binding legal contract could be an easier route to take than multiple names on a mortgage. It will also offer you more protection if one person stops paying her share.
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