Adding A Co-Borrower To Your California Mortgage

Adding someone to your mortgage in California is a significant financial and legal decision. It involves refinancing your mortgage, which means applying for a new mortgage with a new interest rate and monthly payment. This process requires a Uniform Residential Loan Application, where both parties submit their personal and financial information. It's important to note that adding someone to your mortgage increases your borrowing power but also makes them legally liable for the loan. Alternatively, you can add someone to the deed of the house, making them a legal stakeholder without the need for refinancing. This option, however, doesn't make them responsible for the mortgage in the same way.

How to add someone to a mortgage in California:

Adding a co-borrower to an existing mortgage

To add a co-borrower to an existing mortgage, you will need to refinance your mortgage. This will involve getting a new mortgage from your lender or another lender. The new mortgage will allow you to add your co-borrower to the loan and adjust the loan terms, such as the interest rate and monthly payment. Before refinancing your mortgage, be aware of the financial implications of a new loan. Refinancing involves home appraisals, and closing costs that must be paid at closing time. Closing costs typically range between three and five percent of the loan balance. You can sometimes finance closing costs into your mortgage balance.

When adding a co-borrower, you will need to fill out a Uniform Residential Loan Application and provide your full names, Social Security numbers, income amounts, and debt owed. Both of you will also need to submit original documents, such as proof of income and debt. Mortgage underwriting usually takes a few weeks, and if your lender requests more information or documents, respond promptly to expedite the process.

It is important to remember that adding a co-borrower to a mortgage means sharing ownership of the property and responsibility for making payments. Both co-borrowers are typically responsible for paying back the loan and are equally liable for the mortgage debt. Late mortgage payments will be reported on both credit reports and can impact the ability of both parties to obtain new loans in the future. Therefore, it is crucial to have an explicit agreement between the co-borrowers defining each other's financial responsibilities.

Adding a spouse to a mortgage

Step 1: Understand the Options

Before initiating any legal process, it is crucial to understand the options available to you. In California, you can add your spouse to the mortgage or include them as a co-borrower. Alternatively, you can add them to the deed of the house, making them a legal stakeholder without the need to refinance. Each option has its own set of advantages and disadvantages, so careful consideration is essential.

Step 2: Contact Your Lender

The next step is to reach out to your bank or mortgage company to discuss the possibility of adding your spouse to the existing mortgage. Be prepared for the possibility that they may not allow this, as refinancing is often the only option. However, it is worth asking and gathering information about their specific requirements and processes.

Step 3: Explore Refinancing

If your lender requires refinancing, understand that this involves obtaining a new mortgage. Lenders will consider your credit score, employment status, and debt-to-income ratio. Refinancing may lead to better terms, especially if interest rates have dropped since your original loan. On the other hand, higher interest rates can make refinancing less favourable.

Step 4: Prepare the Necessary Documents

Whether you are refinancing or adding your spouse as a co-borrower, you will need to complete a Uniform Residential Loan Application. Both you and your spouse will need to provide full names, Social Security numbers, income details, and debt information. Additionally, be prepared to submit original documents, such as financial records and identification.

Step 5: Understand the Financial Implications

Before finalising any decisions, ensure you comprehend the financial implications of adding your spouse to the mortgage. Adding a co-borrower can increase your borrowing power, but it also means your spouse becomes liable for the mortgage debt. Additionally, refinancing involves closing costs, which can be significant and are typically paid by the person being added to the mortgage.

Step 6: Seek Professional Advice

Given the complexity of the process and the potential consequences, it is highly recommended to consult with financial and legal experts. They can guide you through the specific steps, ensure you meet all requirements, and help you navigate any challenges or unique circumstances that may arise.

Adding a family member to a mortgage

Contact Your Lender

Reach out to your bank or mortgage company to inquire about adding a family member to your mortgage. Be prepared for the possibility of a negative response, as lenders typically do not allow direct additions to an existing mortgage. They may require you to refinance your home, essentially taking out a new mortgage.

Understand the Process of Refinancing

Refinancing involves obtaining a new mortgage, which may be from your current lender or a different one. This process includes home appraisals and closing costs, which can range from 3% to 5% of the loan balance. Lower interest rates during refinancing can lead to more favorable terms, while higher interest rates may result in less favorable conditions.

Include the Family Member as a Co-Borrower

One way to add a family member to the mortgage is by including them as a co-borrower. This increases your borrowing power and improves your chances of loan approval. However, adding a co-borrower after purchasing the house can be more complicated, as it requires refinancing and a second closing. Ensure that you have at least 5% equity for FHA refinances and 20% equity for conventional loans.

Obtain Legal and Financial Advice

Before proceeding, consult with a real estate attorney or financial advisor to understand the legal and financial implications of adding a family member to the mortgage. This is especially important when adding a family member to the deed, as it can impact ownership, tax obligations, and financial responsibilities.

Prepare and Record the New Deed

Once you have obtained the necessary approvals and understood the legal and financial consequences, work with a real estate attorney to prepare the new deed. Ensure that the deed contains all the necessary legal elements and is signed and notarized. Afterward, record the new deed with the county recorder's office in the county where the property is located.

Refinancing a mortgage

If you are looking to add someone to your mortgage, this can be done by including them as a co-borrower. Adding a co-borrower increases your borrowing power and chances of approval. However, adding a co-borrower after purchasing a house is more complicated as it requires refinancing and a second closing. You will usually need 20% equity for this, while FHA refinances require 5% equity.

Before refinancing, it is important to be aware of the financial implications. Refinancing involves home appraisals and closing costs, which can range between 3-5% of the loan balance. You may be able to finance closing costs into your mortgage balance. Lower interest rates could mean more favourable terms, so many people choose to refinance when interest rates drop.

In California, you can consider refinancing with lenders such as California Coast Credit Union, which offers both fixed and adjustable-rate options. Fixed-rate mortgages keep the same payment for the full term of the loan, while adjustable-rate mortgages (ARMs) have fluctuating interest rates that may be more affordable for shorter periods.

If you have available equity in your home, you may be able to get cash at closing with a cash-out refinance loan. This can potentially lower your monthly mortgage payment, help you pay off your mortgage faster, or provide cash for other projects.

Legal processes and expenses

The legal process of adding someone to a mortgage in California is known as a 'transfer of equity'. This process involves changing the legal ownership of the property, so a solicitor will need to be involved. The first step is to talk to your current mortgage lender, as your partner will need to undergo credit and affordability checks to ensure they can keep up with repayments. Your current lender may charge a fee for this service, and they are under no obligation to approve your partner if they do not pass these checks. If your current lender will not add your partner to the mortgage, you could consider remortgaging with another lender, applying for a joint mortgage. However, this will associate your credit score with your partner's, which could negatively impact your score if your partner has a bad credit history.

There are various taxes involved in the transfer of property, including property documentary transfer taxes, affordable housing-related taxes, capital gains taxes, and property taxes. To add someone to the deed, you will need to use either a grant deed or a quitclaim deed, depending on your circumstances. A grant deed is used when the person on the current deed transfers ownership or adds a name, and the grantor promises there are no hidden liens or mortgages. A quitclaim deed is used when someone gives up ownership rights in favor of another person, and the grantor may or may not be on the current deed. This type of deed is often used in divorces or inheritance situations. The deed must include the legal description of the property, the county and case number of the probate case, and the date and title of the order authorizing distribution. It must also state that there is no representation, warranty, or covenant of any kind and be signed by the personal representative. Once the deed is prepared, it must be recorded with the county recorder's office where the property is located.

In California, title insurance usually covers any undisclosed ownership disputes. However, it is still recommended to consult with a legal professional to ensure compliance with all legal requirements and consider the potential implications of the transfer. There may be a fee for mortgage advice, typically up to 1% but usually around 0.3%, of the amount borrowed.

Frequently asked questions