Usually, lenders only witness situations where 1–2 names are on the mortgage. They have a process where they assess the credit report and determine the credibility and financial standing to determine if the mortgage should have the name of just one person or two. However, in some instances, up to 3 people can also have their name on the mortgage for buying a home. Hence, if you are facing such a case, it is essential to know what is involved.
Difference between being on title and mortgage
People often confuse the house’s mortgage with its title. A mortgage refers to the loan for the home and its ownership. A mortgage defines the person who will be paying back the loan that was taken out. It is not the best strategy if you think that putting your name under the mortgage will protect you if something happens to the other. On the other hand, you will be responsible for fulfilling the loan if something happens to the others.
A deed or title defines the owner of the house. The number of people on this title is unlimited, hence the concept of timeshares. Thus, having more than one name on the title solves the security issue of not putting your name on the mortgage.
Can 3 Persons Apply for a Mortgage?
Yes, three people can apply for a mortgage because there is no legal limit to the number of people who can be on a mortgage. However, lenders may have restrictions because of the higher risk.
For example, some lenders will only consider your application if you are blood relatives because there is a lower risk that you will be able to pay regularly, based on statistics. In some other states, lenders do not have many restrictions. For example, in Florida, if you and your friends want to buy a vacation home, it is a common situation and investment, and you will not have many obstacles.
There can be multiple reasons for this. Older people might want to live with their children and make them responsible for paying back the loan after they pass away. Friends can buy a home to reduce the burden of high monthly costs, and each person can take equal responsibility for paying back the mortgage.
This can also be done by buying a vacation house with more than one person. For instance, people can buy a vacation home in Miami together and split the usage time and payments equally. This can also be done as an investment.
How do I qualify for multiple names?
If you add more names to the mortgage to offset the disadvantages of a bad credit rating, this might not be your option. That is because each person on the mortgage is assessed equally for their credit and income status. Hence, if your score is lower than 400, the lender can drop you from the mortgage and choose only those with a good score and robust debt-to-income ratio.
However, this works when you and your friend do not have a strong enough debt-to-income ratio, but your third friend does; adding them will also help you qualify for the loan.
Risks of having many names on the mortgage
Granted, you can add multiple people to the mortgage, but does it mean it does not come with some limitations? The people entering into the mortgage must be aware of the limitations that follow it. If a person wants to drop the loan moving forward, the only way out of this dilemma is to refinance it wholly. Hence, if you want to remove your name, you need the others to comply with the need for refinance.
Hence, in addition to having more names on the loan, you can get someone close or a relative to be a co-signer. If you are getting a vacation home with multiple people, proceeding with a binding contract is best to avoid any disputes. It also gives more protection to all people on the mortgage.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Promtfinance.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@promtfinance.com