Frequently used interchangeably, the terms co-borrower and joint borrower can cause confusion in assessing the financial and legal privileges and liabilities of more than one borrower in a loan agreement. Co-borrowers are equally liable for the mortgage note and have an undivided ownership interest in the property. Joint borrowers are also equally liable for the mortgage note, but may have different ownership interests in the property.
The U.S. Department of Housing and Urban Development Federal Housing Authority defines co-borrower as any additional borrowers whose names appear on loan documents and whose income and credit history are used to qualify for the loan. All parties involved have an obligation to repay the loan. The names of co-borrowers also appear on the property's title. When the title or deed is recorded, it is usually recorded as a joint tenancy with right of survivorship. This means that the property owners have an undivided interest in the property, and that ownership interest passes to the survivor in the event of death.
Joint borrowers sign the promissory note and the deed also. Like co-borrowers, joint borrowers are equally responsible for payment of the promissory note. However, when the deed is recorded, joint borrowers can elect to record the deed as a joint tenancy or as a joint tenancy in common. When the deed is recorded as a joint tenancy, there is essentially no difference between a co-borrower and a joint borrower. Joint tenancy in common allows for equal or unequal shares of property ownership. It also allows for the owner's share of the property to pass to the beneficiary of the owner's choosing instead of to the survivor.
Joint Borrowing Increases Income
As a general rule, you will be able to borrow approximately three times the income of the primary earner and half of the other individual's income as joint borrowers. Co-borrowing also increases income to qualify for a mortgage. However, revised FHA guidelines require that the primary borrower in a co-borrower arrangement must earn enough income to at least make a full mortgage payment on his own.
Which Ownership Works Best for You?
Joint mortgages are more common among married couples, whereas joint tenancy in common is more prevalent with unrelated individuals or business partnerships. If you want your children to get your share of the house as stipulated in your will, you might want to explore having the title held as joint tenants in common. This way, your intentions will be honored. Some states, however, require that your current spouse get a statutory share of your property, regardless of your will. It would be wise to consult your legal and financial advisors about joint mortgages and borrowing because the details about title ownership and title transfer can be complex.
- HUD: Section A. Borrower Eligibility Requirements Overview; 4155.1 4.A.1.d Borrower and Co-borrower Requirements
- Marlborough Savings Bank: What You Should Know About Joint Mortgages
- Geoeo: Joint Mortgage Benefits
- Trulia: Rudy McDowell's Blog: Updated FHA Guidelines for Non Occupying Co-Borrowers
- Mortgage 101: A Guide to Joint Mortgages
- Realty Times: Housing Counsel: Protecting the Surviving Spouse
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