Marriage is a big step. So is buying a home. But you don't have to be married to your long-time sweetheart to take out a mortgage loan with that person. You can even apply for a mortgage loan with a friend, sister, brother, parent or co-worker. Be aware, though, that when you share a mortgage loan with someone else -- whether that person is a spouse, another relative or a friend -- both of the people who are listed on the loan are responsible for paying off the mortgage. And if you miss payments or make them late, the credit scores of everyone whose names are on the mortgage loan will fall.
It's relatively easy to share a mortgage loan with someone to whom you are not married. You simply have to apply jointly with that person for your mortgage loan. When people apply jointly for a mortgage loan -- whether they are married or not -- they both provide their information on the Uniform Residential Loan Application. This application requires basic information for each borrower -- name, addresse, Social Security number, estimate of income and total debt. Applicants must also certify that they haven't declared bankruptcy or lost a home to foreclosure in the last seven years. Borrowers start the mortgage-lending process by sending this completed form to a mortgage lender.
There's an obvious benefit that goes with sharing a mortgage loan: It gives the people applying for the mortgage a larger income base. Lenders look carefully at the gross monthly income and debts of borrowers. They want borrowers' total monthly mortgage payment -- including principal, interest, taxes and insurance -- to equal no more than 28 percent of their gross monthly incomes. They also want borrowers' total monthly debts -- everything from their estimated new mortgage payments to the minimum they must pay each month on their credit cards -- to equal no more than 36 percent of their gross monthly incomes. If you apply jointly with someone for a mortgage loan, lenders will consider the gross monthly income of every person whose name is on the loan application. Be careful, though: Lenders will also consider the monthly debts of everyone whose name is on the mortgage-loan application.
When you apply jointly for a mortgage loan, lenders will pull the credit history of each person whose name is on the application. This can be a negative if the friend, relative or co-worker with whom you are applying has a low credit score. Lenders will usually count only the lowest credit score among co-borrowers. Even if you have a high FICO credit score, a low credit score for your co-borrower might result in a high interest rate or cause the lender to decline the application.
Applying for a mortgage loan with someone to whom you're not married carries some risks. If you do decide to get married, you might have to sell the home to pay off your mortgage debt. If your co-borrower suddenly stops making mortgage payments, you remain responsible for them. If the lender has to initiate foreclosure proceedings, your credit score will plummet -- even if you've always paid your portion of the mortgage loan. If your relationship with the other person on your mortgage loan deteriorates and you no longer want to live together in the same home, you will have to decide how you and the co-borrower will handle the payments.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.