Adding Someone To Your Mortgage: What You Need To Know

Adding someone to your mortgage can be a practical solution in certain situations, but it's important to consider the potential downsides and legal and administrative processes involved. Firstly, it's crucial to discuss the matter with the person you plan to add, as their financial history and credit score will impact your application. Lenders will assess both your financial situations and may deny your request if the new person's finances don't meet their criteria. Additionally, adding someone to your mortgage can impact your initial deposit, as joint tenancy agreements result in an equal split of the property, causing you to lose your initial deposit. Furthermore, tenancy-in-common agreements can lead to unfair decision-making and the possibility of owning the property with a stranger. Before making a decision, it's recommended to consult a mortgage broker and seek legal advice to ensure you're aware of all the options and potential challenges.

Discuss the financials

When it comes to the financials, there are a few key things to consider when adding someone to your mortgage. Firstly, it's important to have a detailed understanding of the other person's financial history, including their credit score and income. This is because lenders will take into account both your finances when assessing your eligibility for a joint mortgage. If the person you're adding has a low credit score or a history of struggling with loan repayments, it could negatively impact your application. Therefore, it's crucial to ensure that they meet the affordability and credit criteria of the lender.

Another financial consideration is the cost of adding someone to your mortgage. There may be fees involved, including solicitor fees and processing fees charged by the lender. You should also be aware that adding someone to your mortgage may impact your initial deposit. If you originally purchased the property on your own, a joint tenancy agreement means that you will now be entitled to only half of the deposit you may have previously paid solely. One way to potentially equal out the finances in this scenario is to opt for an equity transfer mortgage, which allows for an agreed-upon percentage of ownership of the property.

In addition, it's important to plan for contingencies and discuss how costs will be divided between you and the other person. This includes deciding on the percentage of ownership each of you will have and how much each person will contribute to the mortgage payments. It's also crucial to consider what will happen in the event of death, divorce, or other unforeseen circumstances. A legally binding document can help outline these decisions and protect both parties.

Furthermore, it's worth noting that adding someone to your mortgage may involve refinancing or remortgaging your home, essentially taking out a new mortgage. This means you may be subject to different interest rates and loan terms, which could impact your overall financial obligations. Therefore, it's important to carefully consider all your options and seek advice from a mortgage broker or adviser to find the best solution for your specific circumstances.

Lastly, if you're adding a family member or someone you have a pre-existing relationship with, it's important to weigh the financial risks and rewards. For example, adding a sibling as a property owner by filing a quitclaim deed may seem like a convenient way to transfer ownership, but it could also put your mortgage in jeopardy if they default on their payments.

Consult a mortgage broker

Consulting a mortgage broker is a good idea if you're unsure about how to proceed with adding someone to your mortgage. A mortgage broker is a licensed professional who acts as a middleman between you and the lenders. They can help you find the best rates and terms for your mortgage, saving you time and money.

Before meeting with a broker, ensure they have a license to give you credit advice. You can verify this by checking your state regulator or the Nationwide Mortgage Licensing System & Registry. It is also worth reading online reviews to get a sense of the broker's experience and expertise. When choosing a broker, consider asking friends and family for recommendations and seek referrals from your real estate agent.

Once you've chosen a broker, be prepared to discuss your needs and goals. This includes understanding what you can afford to borrow and any specific features you may want in your loan, such as the ability to make extra repayments. The broker should present you with multiple options and explain how each loan option works, including costs and interest rates. They may also verify your income, employment, and credit history to solicit quotes from lenders.

Remember, you are not required to work with a mortgage broker, and it is important to understand the loan terms and fees associated with their services. Ask questions and never sign anything you are unsure about. If you feel pressured, you can always seek advice from another broker.

Understand the legalities

When considering adding someone to your mortgage, it is imperative that you understand the legal implications and requirements to ensure a smooth and compliant process. Here are the key legal aspects you should be aware of:

Firstly, ensure that you fully comprehend the legal concept of "adding someone to a mortgage." This process legally entitles the added individual to partial ownership of the property. It also makes them responsible for the mortgage repayments, along with any other existing borrowers. This means that the new person shares equal rights and liabilities regarding the property and the mortgage loan.

Before proceeding, it is advisable to seek legal counsel to understand the specific implications for your situation. Each state has its own laws governing property and mortgages, so it is essential to be aware of the regulations in your area. Understanding these laws will help you navigate any unique requirements or restrictions that may impact your decision.

Another critical legal aspect is the creditworthiness of the individual you intend to add to the mortgage. Lenders typically assess the credit history and financial stability of the new borrower, including their employment status, income, and overall financial health. Ensure that the person you plan to add meets the lender's eligibility criteria and has a strong credit profile to avoid complications with loan approval and financial responsibility.

In some cases, adding someone to your mortgage may trigger tax implications. Depending on your location and specific circumstances, there could be transfer taxes or other fees associated with the change in ownership. Consult a tax specialist or financial advisor to understand the potential tax consequences and plan accordingly, avoiding unexpected costs and legal issues.

Lastly, be prepared for the legal documentation and processes involved. Adding someone to your mortgage typically requires a legal transfer of ownership, involving deeds, contracts, and other legal paperwork. Familiarize yourself with the necessary documents, and consider seeking guidance from a real estate attorney or legal professional to ensure compliance and protect your rights.

Consider tenancy options

When considering adding someone to your mortgage, it is important to think about the tenancy options available to you. There are two main types of tenancy agreements: joint tenancy and tenants in common.

Joint tenancy

Joint tenancy is a legal term for an arrangement that defines the ownership interests and rights among two or more co-owners of a property. In a joint tenancy, all co-owners have equal rights and responsibilities. This type of agreement is most commonly used for real estate investments. It is also referred to as "joint tenants with right of survivorship" or "JTWROS". This means that when a joint tenant dies, their shares automatically transfer to the surviving co-tenant(s). It also means that the surviving co-tenant(s) immediately gain the decedent's property interest and become responsible for the mortgage.

Tenants in common

Tenancy in common is an arrangement where two or more people share ownership rights in a property. Each co-owner may control an equal or different percentage of the property. When one of them dies, the property passes to that tenant's beneficiaries or heirs. Tenants in common are responsible for the usual homeowner responsibilities, such as property tax, mortgage payments and any other home repairs needed.

Other options

If you are considering adding someone to your mortgage, it is important to first discuss all the possibilities with your potential mortgage partner. You may find it easier to simply have the person who is moving in pay you each month, as a tenant would a landlord, or set up a joint bank account that is used only for mortgage payments. Alternatively, you could add this person to the deed of the house, making them one of the owners of the house without them being legally liable for the mortgage.

Contact your lender

It's important to contact your lender as early in the process as possible to understand their specific requirements and procedures for adding someone to a mortgage. Each lender will have its own policies and processes, so getting clarity on these from the outset will help ensure a smooth and efficient process.

When you contact your lender, be prepared to explain your situation and why you want to add someone to your mortgage. They will likely have specific eligibility criteria for co-borrowers or co-signers, such as minimum income or credit score requirements. Ask about these requirements and confirm if the person you want to add meets them.

During the conversation, inquire about the specific documents that will be required for the process. This may include financial statements, tax returns, proof of income, and credit reports for both you and the person being added to the mortgage. Understanding the documentation upfront will allow you to get everything in order before initiating the formal application process.

Ask your lender to guide you through the exact steps of their process for adding a borrower or cosigner. They may require a formal application, and there may be fees or charges involved, so it's important to understand the financial implications. They should also be able to provide a timeframe for the process, so you know what to expect in terms of timing.

Finally, don't hesitate to ask questions and seek clarification on any aspect that you don't fully understand. Adding someone to your mortgage is a significant financial decision, and it's crucial to have a comprehensive understanding of the process, requirements, and potential risks involved. By maintaining open communication with your lender, you can ensure that you're well-informed and make the best decision for your situation.

Frequently asked questions