If you are looking to pool your money with someone like your friend or relative and want to buy a property through a joint mortgage, you should know about all the ups and downs of this process.
It is an arrangement for which you should be aware of before getting into.
The Pros Of A Joint Mortgage
Better Chances Of Getting Approved
One of the main benefits of applying for a joint mortgage for a house is that combining the income of the applicants makes it easier for your application to get approved.
One of the main reasons for mortgage applications getting rejected is the high-income threshold the banks keep for the applicants. But, if we look at the collective income of two people, the income threshold can be broken.
It also allows you to look for bigger homes without worrying about credit issues. When the incomes of both applicants are combined, then many opportunities open for the applicants.
Applying for a joint mortgage also allows for tax benefits for the applicants. This is only applicable if the joint mortgage applicants are on title to the home and they live in that home itself.
In case of a joint mortgage, both the applicants can get income tax rebates at once. The tax rebate can be applied to the amount of interest repayment as well as the amount of principal repayment. The tax rebate is also capped at a specified threshold.
Property Transfer Tax
A joint mortgage for a home has one more advantage which is a property transfer tax. In the case of a joint home mortgage, each applicant should only pay the taxes in accordance with the price of their percentage of the home.
This is a significant advantage that can save the applicants 1000s of dollars on their joint mortgage.
Usually, the property transfer tax is one percent for the first 500,000 USD but if the value of the property exceeds this amount, the property transfer tax is 1.5 percent of the total value of the property.
This amounts to a great property transfer tax but if the property is being jointly mortgaged then the property transfer tax is shared among the applicants.
The Cons Of A Joint Mortgage
People Opting Out Of The Mortgage
As mentioned before, one of the advantages of joint mortgages is that it makes the application easier to get approved. But this process has a catch. It is absolutely crucial for you to understand that a joint mortgage holds each of the applicants responsible for the inability of payment of any of the applicants.
It could happen that due to unfortunate incidents, one of the applicants may lose their job or get stripped off of their money. It could also happen that one of the applicants may want to buy another property and stops making the mortgage payments.
In such a case, the credit history of every single applicant of the joint mortgage is affected.
This is the sole reason why you should only apply for a joint mortgage with the people you trust. This agreement should be discussed before applying for the mortgage. Another way is to apply for a personal loan for bad credit from websites like OpenLoansUSA.
It is also advised that you take up the joint mortgage with people close to you like your significant other, relative or close friend. In case you are not applying for the joint mortgage with an unrelated person, you should obtain legal advice beforehand.
Your legal counsel should draw up an agreement which should contain the clause of somebody opting out of the mortgage at a point of time after the application is approved.
Generally, most banks allow for a mortgage holder to opt-out of the other applicants are paying for the difference.
Selling A Portion Of The Mortgage To An Investor
Another possibility to consider before applying for a joint mortgage is that if one of the mortgage applicants wants to sell their portion of the mortgage to another investor then the process can be quite troublesome.
The new investor should be approved by the bank you are taking the mortgage from and the new investor should agree to the price of the mortgage the previous applicant was paying and should be ready to pay their percentage of the mortgage.
The new investor can also affect the previous owners if a conflict arises.
As mentioned earlier, you should draw up an agreement with the help of your legal counsel which contains all the possibilities and should definitely have clauses for opting out of the mortgage and selling off your portion of the mortgage to a new investor.
This way, you can save your credit score and avoid legal trouble in the future.
Finally, the bottom line is that a joint mortgage is a good choice if you want your mortgage to get approved faster and want to save on property transfer taxes.
However, you should be aware of all the probable possibilities while applying for a joint mortgage. You should preferably apply for a joint mortgage with a relative or close friend you can trust.
If you apply for the mortgage with an unrelated person, make sure to draw out an agreement that discusses all probable possibilities and conflicts that may arise in the future.