Home mortgage loans are always structured so that every borrower named on the loan note is responsible and liable for the entirety of the mortgage. Once the loan is recorded, no new borrowers can be added or taken off without refinancing the mortgage, or going through a process called an assumption. So a significant other cannot buy into part of a mortgage.
Shared Mortgage Liability
People often ask about splitting liability on a mortgage loan. Sometimes they each want to be responsible for 50 percent of the mortgage. So two partners on a $200,000 loan would request that each be responsible for $100,000. Another situation that home buyers often ask about is when parents co-sign on their child’s loan and give them the money for the down payment. Wanting to protect their investment, the parents may ask for 20 percent of the loan to be in their name, with 80 percent in their child’s name. The bank, however, will not allow for these types of arrangements.
Liability Cannot Be Split Up
The bank that carries a mortgage holds all borrowers responsible for 100 percent of the loan. This protects their interests. If one borrower walks away, the bank can still pursue full collection against the other borrower. In the case of the co-signing parents, even if the parents did not live in the property and had never made the payment, if the child stopped making payments, the bank could pursue collection for the full amount from the parents.
Refinance or Assumption
No one can ever buy into only part of a mortgage. If a homeowner wants to put a significant other on a loan, it would have to be done as part of the original loan paperwork, and the significant other would be on the whole loan. It could be done as part of a refinance, which is technically the writing of a new loan. If a refinance is not beneficial, and it is important to put the significant other on the loan after the fact, they can do an assumption. The new party would have to be qualified based on their income and credit. The process of an assumption is similar to a refinance, and there are some fees involved, but the rate and term of the original loan stay the same.
If your living situation makes it important to split the responsibility of a mortgage loan between you and your significant other, the best option would be to come to a mutual understanding and write up a private agreement between the two of you. The same would be advisable if your parents or someone else helped you buy your home. This agreement would not supersede any of the terms in the mortgage loan with the bank, but any time you have a private financial understanding, whether with family or with friends, putting things in writing can help prevent disagreements from arising down the road.
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