Steps to Qualifying for a Joint Mortgage
A joint mortgage is a mortgage that 2 or more people take out. The mortgages are issued based the the qualifications of everyone involved rather than any one person in particular. Usually, the joint mortgages are issued to married couples, but groups of investors and friends can apply. All parties involved are equally responsible for paying the mortgage, which reduces the financial burden. On the other hand, all parties are equally penalized if someone falls behind on payments, and the mortgage reflects the same way on everybody's credit histories.
Combining Financial Data
Since the joint mortgage applicants apply as a group rather than as individuals, they would have to combine their financial data. This includes income, credit history, and debt. The mortgage lenders make their decision based on the combined data, treating it as they would the financial data of an individual applicant.
Combining Income and Debt
For the purposes of the joint mortgage application, the applicants' income is added together. That means that while the applicants may not have enough income to qualify for a mortgage as individuals, their combined income would be enough to fit the requirements. The flip side of that is that the debt of the applicants is added up the same way. That means that when they apply as a group, they have bigger debt than they would as individuals.
When looking at the mortgage applications, the mortgage lender will take the combined income and compare it by the value of the combined debt. This is known as the income-to-debt ratio. If the income is smaller than debt, the applicants would not be able to qualify for the mortgage. If the income is larger than debt, they would be able to qualify. The more the income exceeds the debt, the more likely they are to get a larger loan.
Fortunately, the combined income-to-debt ratio tends to be better than individual income-to-debt ratio. That means that, even if the combined debt is bigger, the applicants still stand a better chance of qualifying for joint mortgage than they would for individual mortgages.
Combining Credit History
Credit history measures the applicants' ability to pay off debt. Just because the applicants have a bigger debt does not mean they are not paying it off promptly. Conversely, applicants will smaller debt may have trouble making on-time payments. The history is expressed as a number known as the credit score. The higher the number is, the better the applicants' credit history is.
For the purpose of the joint mortgage application, the mortgage lender can use several different methods to determine which credit history applies. Some lenders look at the applicants' credit history and select whoever has the highest credit score. Others will take the scores of all applicants and average them out. Other lenders choose the credit score of the borrower with the highest income. Depending on the credit history of the borrowers, each of those methods can be either an advantage or a disadvantage.
It is also important to remember that, contrary to many people assume, each applicant does not have a single credit score. Rather, he or she has three. Each credit score is calculated by a different credit reporting company. Because each credit reporting company has its own reporting method, the credit scores will vary slightly. The lender reserves a right to choose any 1 of the 3 credit scores. While this will not make much of a difference if the applicants' credit scores are far apart, it can if the applicants' scores are close together, a single digit can make a difference between acceptance and rejection.