Usually, lenders only witness situations where there are 1–2 names on the mortgage. They have their process where they assess the credit report and determine the credibility and financial standing to find if the mortgage should have the name of just one person or two. However, in certain cases, up to 3 people can also have their name on the mortgage for buying a home. Hence, if you also face such a case, it is important to know what is involved.
Difference between being on title and mortgage
People often confuse the house’s mortgage with its title. Mortgage refers to the loan for the house and the ownership of it. A mortgage just defines the person who will be paying back the loan that was taken out. If you think that putting your name under the mortgage will protect you if something happens to the other, it is not the best strategy. On the other hand, you will be responsible to fulfill the loan if something happens to the others.
A deed or title is what defines the owner of the house. The number of people on this title is unlimited, hence the concept of timeshares exists. Hence, having more than one name on the title is what solves the issue of security and not by putting your name on the mortgage.
Can 3 Persons Apply for a Mortgage?
Yes, 3 persons can apply for a mortgage because there is no legal limit to how many people can be on a mortgage. However, lenders may have restrictions in this case because of the higher risk.
For example, some lenders will only consider your application if persons are blood relatives because lower risk that you will be able to pay regularly based on statistics. In some other states, lenders do not have a lot of 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 a lot of obstacles.
There can be multiple reasons for this. The people who have become old might want to live with the 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 costs that are levied monthly, and each person can take equal responsibility for paying back the mortgage.
This can also be done with the purpose of buying a vacation house with more than 1 person. For instance, people can buy a vacation home in Miami together and split the usage time and payments equally amongst each other. This can also be done with the intent of investment.
How to qualify for multiple names?
If you are adding more names to the mortgage to offset the disadvantages of a bad credit rating, this might not be the option for you. 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 the people who have a good score and robust debt to income ratio.
However, this works when you and your friend are not having a strong enough debt to income ratio but your third friend does, then adding him/her will help qualify for the loan too.
Risks of having many names on the mortgage
Granted you can add multiple people to the mortgage, 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 from 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, besides 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, it is best to proceed with a binding contract to avoid any disputes. It also gives more protection to all the people in the mortgage.