Add Someone to Your Mortgage

Many people wish to add someone to their mortgage with a major life change, most commonly marriage. If you and your spouse (or partner, parent, child, or friend) are living together and sharing the rest of your expenses, why shouldn’t you bear the legal and financial responsibilities of homeownership together? Unfortunately, your lender will probably not make it easy for you to do this. Moreover, it might not be in your best interests. If you do decide to go down this path, make sure you are armed with the right information.

Steps

Understanding How It Works

  1. Contact your lender. There’s no harm in asking your bank or mortgage company if you can simply add a person to your mortgage. Be prepared for them to say no, however—in fact, this will be their answer in most cases. Instead, they will likely make you refinance your home, in effect taking out an entirely new mortgage.
    • However, since refinancing means that you have the opportunity to look for a new lender, they may just let you add the person so they do not risk losing your business.
  2. Shop around. Since you are getting a new mortgage anyway, don’t feel obligated to stay with your lender. Read about how to compare mortgage programs Compare Mortgage Programs.
  3. Fill out a Uniform Residential Loan Application once you have decided on a lender. You will be asked for your full names and Social Security numbers along with the amounts of income you receive and debt you owe. Both of you will also need to submit originals of several documents, including the following:
    • Pay stubs
    • Bank statements
    • Your two most recent tax returns
  4. Sign your documents and pay closing costs. You will now have added this person to your mortgage. Before you do, however, think about your personal situation in relation to the other options that are out there.

Evaluating Your Finances

  1. Know where you stand with your existing mortgage. If you have a conventional mortgage (not with the FHA or any other special program), you will probably need to have at least 20% equity (the difference between market value of the home and the mortgage on it) before you can qualify for a refinance. If you are not at this point, you will likely need to consider another option.[1]
  2. Have a conversation with the other person. If you are considering adding someone to your mortgage, you probably have some idea of his financial history. A vague idea of his history is not enough here, though. Getting exact numbers where applicable, make sure you know specifics of the following:
    • Income
    • Debt, including from student loans
    • Credit score
    • Whether he has declared bankruptcy or faced foreclosure in the past seven years
  3. Think about how the other person’s finances will affect your chances. If you were able to get a mortgage in the first place, it is because your lender believed you had the income to afford the house and a history that made you creditworthy. If you want to add someone to your mortgage, the lender will take both of your incomes, credit scores, etc. into account. While adding a second person’s income can help, other factors can work against this.
    • For instance, imagine that you have excellent credit (anything above 750). This helped you qualify for favorable terms, including a lower interest rate, on your original mortgage.
    • Now, imagine that the other person has poor credit—a score of between 600-649.
    • You might think that the bank or mortgage company will average these two scores together, landing you somewhere in the good to fair range. You could probably still get a decent offer with a score like this.
    • Unfortunately, this is not what they will do. Instead, they will only consider the lower score.
    • Not only are you unlikely to receive an offer with favorable terms in this scenario, but you may also not get a mortgage at all.
    • Conversely, of course, adding a person with credit that is better than yours can help.
  4. Look at interest rates. Have interest rates fallen dramatically since you got your original loan? Conversely, have they increased? This is one more factor to consider when thinking about refinancing.
    • Lower interest rates could mean more favorable terms, so many people choose to refinance under these economic conditions.
    • Higher interest rates could mean less favorable terms, so think carefully before deciding to refinance in this climate.
  5. Be prepared to pay some fees again. Remember all of the closing costs and other fees that you had to pay when you first secured a mortgage? You will need to cover these expenses once again if you decide to refinance.
    • Closing costs for refinancing can be very expensive—anywhere between three and six percent of the remaining principle on your loan.
    • This means that, if you have an outstanding balance of $150,000 left on your mortgage, closing costs alone could be between $4,500 and $9,000.

Considering Other Options

  1. Think about adding this person to the deed of the house. If you want your spouse, parent, or child to have a stake in the house (when it comes to inheriting, for instance) but don’t want to go through the hassle of refinancing, consider adding this person to the deed of the house. He won’t be legally liable for the mortgage the same way you are, but he will be one of the owners of the house (once the bank is paid off).[1][2]
  2. Consider making a private agreement. There are many reasons, both practical and emotional, why you would want to add someone to your mortgage. But sometimes it’s not necessary. You may find it easier just to have the person who is moving in pay you each month, as a tenant would a landlord, or set up a joint bank account to which each person contributes and is only used for mortgage payments.
    • This unofficial set-up works best if you are a married couple. If you were to die, your lender would be legally obligated to let your spouse take over the mortgage.[2]
  3. Talk to a lawyer. It is important to plan for contingencies with someone on your mortgage, but it is even more important without. Nobody wants to think about it, but death, divorce, and other unforeseen events happen. Consider a legally-binding document that answers the following questions:[3]
    • How will costs be divided? You both contribute to the mortgage, but you probably do not make the same amount of money. How much should each person contribute? How will this change if one of you loses your job or goes bankrupt?
    • What will happen to the house if you break up? Will you sell it, or will one of you stay there? If the former, how will proceeds from the sale be divided? If the latter, who will be responsible for costs?
    • What will happen if one of you dies? If you are unmarried and/or do not have your spouse or partner’s name on the mortgage or deed, the house may not automatically go to him. If this is what you want, talk to a lawyer to make sure the necessary documents are in place.

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Sources and Citations

  1. ↑ 1.0 1.1 http://finance.zacks.com/adding-coborrower-refinancing-1188.html
  2. ↑ 2.0 2.1 https://www.freecreditscore.com/blog/can-add-spouse-home-loan/
  3. ↑ http://www.bankrate.com/finance/real-estate/homebuying-tips-unmarried-couples.aspx
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