How Many People Can Be on a Mortgage?

Technically, there is no limit to the number of people who can be on a mortgage. Practically, however, lenders prefer to deal with at most four borrowers –- and even that amount brings potential complications.

While two or more people may wish to buy a home together – perhaps because they’re married or living together, or they’re a group looking to invest in a home – the complexities in underwriting and managing the loan with several borrowers make lenders queasy.

A loan with several borrowers would have numerous credit scores to consider and would require considering the income and debts of all borrowers. How the property is held legally also becomes a consideration, and all borrowers would be equally responsible for payment.

Roger Wittman, a Mortgage Loan Officer with NEXA Mortgage LLC in Avon, Ohio, said the lowest credit score in a group “becomes the one used for eligibility,” Which means if one borrower has a lower score than others, that could lead to a higher interest rate on the loan.

“To use a sports comparison, a sports betting parlay is very difficult,” Wittman said. “If you have six legs in the parlay, it only takes one to bring it down. It’s the same with a mortgage. If one leg is weak, it all suffers. From our point of view, we want the easiest win, so we will try to find the right combination to reach the ideal goal, which is to buy a house.”

Technology also enters the discussion. Most conventional mortgages are backed by Fannie Mae or Freddie Mac, both government-sponsored agencies. While Freddie Mac does not limit the number of borrowers, practical concerns do. The Loan Product Advisor computer system at Freddie Mac can handle five borrowers, while the Desktop Underwriter at Fannie Mae can handle four.

“These limits are not dictated by Freddie Mac or Fannie Mae policies directly, but rather by the software constraints that underwrite and process the loans,” said Maria Fernanda Vergara-Avery, a Mortgage Loan Originator for USA Mortgage. “Lenders also often adhere to these software limits for simplicity and efficiency in the underwriting process.”

Using more borrowers than four or five means manually underwriting the mortgage, which gets complicated and which many lenders will not do.

“With even just four borrowers, we have four credit reports and a whole bunch of debts to assess, because we look at everyone’s debts,” Wittman said. “If you look at four- or five people’s credit cards, now we have 30 credit cards to balance. If the fourth individual has a bad debt-to-income ratio, you have to ask why he is added because he is taking away from borrowers 1 and 2’s debt ratio.

“It’s possible to have more than four (borrowers), but there are many different reasons to say it very rarely happens.”

Those who may wish to press forward may find benefits to getting a mortgage with several partners. But it also can easily become messy if one or more borrowers fail to fulfill their responsibility.

Pros & Cons of Having a Mortgage with Multiple Borrowers

Several situations could lead to more than one person getting a mortgage.

A married couple may want both names on the mortgage. Friends may invest in a vacation or investment home. Two or more borrowers combining their incomes could lead to a larger loan amount, though as the loan increases so does the payment. Finally, a group of borrowers may allow those who cannot afford a home on their own to qualify for a loan that helps them become homeowners.

When more than one person takes out a mortgage, they take out what is called a joint mortgage. This means all are legally responsible for repaying the loan, and all will have their credit and income assessed when they fill out applications.

“If your brother is making $1 million, but his credit score is 550, it will seriously impact your loan,” Wittman said, speaking of a hypothetical situation.

Responsibility for acquiring and repaying an individual mortgage obviously falls on one person.

Pros

• Borrowers could combine income to purchase a more expensive home, and combined incomes could ease the path to mortgage pre-approval.
• Financial responsibility for the mortgage is shared.
• A joint mortgage loan may have a better interest rate, depending on the creditworthiness of each applicant.

Cons

• Money issues between friends can turn unpleasant, and if one borrower stops paying the others must make up the missing money.
• All borrowers share liability for the debt, and all credit scores will be considered, with the lowest score the determining factor in interest rate and qualification.
• Any agreement between a group should detail how proceeds from ownership and a future sale are distributed.

How to Apply for a Mortgage with Multiple Borrowers

Applying for a joint mortgage essentially is the same as applying for a mortgage as an individual. The steps are just taken with several borrowers instead of one.

The same information must be provided by all parties applying for the loan, whether it comes from a brick-and-mortar institution or from one of the online mortgage lenders.

Borrowers also must qualify for the loan, and if there are several borrowers all must qualify. The lender looks at the financial situation of every person on the loan.

This includes:

• A credit check. All borrowers’ credit scores and history will be considered. Generally, Fannie Mae and Freddie Mac require a score of 620 to qualify. Higher credit scores typically lead to the best interest rate.
• Proof of income. All borrowers must provide pay stubs, tax returns, and asset information.
• Details on debt. Debt-to-income (DTI) is an important consideration for lenders. Generally, DTI should not exceed 45% to qualify for a mortgage.

It’s important to recognize the difference between a co-borrower and a co-signer. A co-borrower takes out the mortgage loan and is responsible for repayment while also assuming shared ownership of the property. A cosigner shares responsibility for the mortgage loan but has no ownership share in the property.

Both co-borrowers and cosigners must meet loan requirements and assume responsibility for the debt.

Tips for Joint Mortgages

The most obvious and logical example of people who may want a joint mortgage are married couples or partners who live together. Their incomes typically are combined for expenses, so they could be combined for a mortgage in a home they share.

Here are some tips for those considering a joint mortgage.

• Early in the process, discuss the situation openly and honestly. Make sure all partners understand the goals, expectations, and requirements of the joint mortgage.
• Understand the finances. Everyone signing an agreement should know the financial situation and wherewithal of the other partners.
• Plan ahead. A group of buyers from different households should spell out a clear agreement for the future. Factors to consider include what happens if a partner wants out, if a partner dies, if one partner wants to sell, and if one partner does not live up to their obligation.
• Consider a legal structure. If several partners are buying together, an agreement in writing about the loan would be helpful. Forming an LLC to purchase the property would protect individuals from lawsuits or a dispute because the LLC is liable, not the individual. In addition, an LLC loan differs from a conventional mortgage loan, and would be judged on the LLC’s assets, not each individual’s financial status, Wittman said. Before creating any entity, talk to the lenders you are considering to be sure they will loan to an LLC or partnership.
• Talk to an attorney. This short-term cost could avoid long-term pain. The attorney could advise if an LLC, corporation, trust, or partnership would be best for the situation and advise on considerations to address in any agreement.
• Evaluate all credit scores. Lenders will want to know the score for every applicant. If one score stands out as low, it may be an issue in borrowing or finding the optimal interest rate. Wittman points out that a borrower with a 660 credit score with partners in the 700s will typically add 1% to the interest rate for the mortgage.
• Ensure needed paperwork is collected and complete. All borrowers will need to provide information about income, taxes, and debt.

How to Remove Someone from a Mortgage

If someone needs to be removed from a joint mortgage with several signers (which can happen for a number of reasons), typically there are three ways to make this happen.

The “cleanest” way would be for the other partner(s) to buy out the departing member. This entails either paying the departing partner cash for his or her share of the equity in the home or refinancing for a new loan that replaces the old mortgage while paying the partner’s equity.

Refinancing can be advantageous if interest rates have dropped since the first mortgage was taken. However, the equity would have to be calculated carefully and accurately.

Finally, the remaining partner(s) could assume the mortgage, meaning they assume what is left of the loan. This step needs approval from a lender that allows assumable mortgages.

Regardless of which option is chosen, the borrowers must qualify for the new loan (if there is one), which means the lender must approve it.

A married couple that decides to divorce must work out the details of the home as part of their divorce agreement. This may mean selling the home and sharing the proceeds or having one partner buy out the interest of the other.

The Bottom Line

A joint mortgage may make sense for some.

A married couple or partners living together could well benefit from a joint mortgage. Couples have the advantage of trust built over time.

For others, the joint mortgage is an option that can help buy a home, provided the partners understand the process and agreement, and understand each other. Knowing the people involved is as important as knowing the agreement for the purchase.

Details should be carefully considered and understood. Possibilities and contingencies should be evaluated. Having a clear statement signed by all could avoid future legal entanglements.