Joint mortgage vs joint ownership: What to know about a shared home

Just because two people apply for a home loan together doesn't mean both people share ownership of the property. The opposite is also true: a property may have co-owners, where one party is not listed on the mortgage. It's essential everyone involved understand the differences between a joint mortgage and joint ownership.

In a joint mortgage, both parties are financially equally responsible for a home, but that doesn't mean they both have equal property ownership rights. For example, a parent could enter a joint mortgage with their child to help them with a home purchase. Still, they aren't automatically listed on the deed. Only individuals listed on the home title and deed have ownership of the property.

Alternatively, a couple could marry after one person owns a home. The owner could add their spouse to the deed. This would make the spouse a joint owner, but they wouldn't be a party in a joint mortgage, and they have no (legal) financial responsibility for the home.

What is a joint mortgage?

A joint mortgage is a home loan that's granted to multiple people. A mortgage lender will consider all applicants' income, credit history, and job status. All parties provide personal information and sign the final loan documents.

While many people think of married couples when talking about a joint mortgage, this isn’t always the case.

For example, two roommates could take out a joint mortgage on a property. Investors could take out a joint mortgage together, or parents could take out a joint mortgage with their child.

There are multiple benefits of joint mortgages, including:

• The loan is approved based on two incomes, increasing the odds of approval.
• The ability to qualify for a larger loan amount.
• The potential to qualify for lower interest rate.
• The financial responsibility of the home loan is shared between multiple parties.

While a joint mortgage has many benefits, there are some disadvantages to consider:

• The mortgage application considers the credit score and history of all buyers. This could potentially lead to a higher interest rate.
• If your co-borrower doesn't pay their portion, you could be on the hook for the entire purchase and/or face potential credit and legal problems if you're unable to keep up mortgage payments.
• A joint mortgage does not mean joint ownership. This could lead to disagreements and confusion.
• If there is a falling out between the parties on a joint mortgage, complications arising from handling the property can be complicated.

What is joint ownership?

Joint ownership means that more than one person has rights of ownership to the property. There are several joint ownership options, including:

1. Tenants by entirety: This type of joint ownership only applies to legally married couples. This agreement views the couple as one person. Ownership rights are transferred to the surviving partner when the other dies.

2. Joint tenancy: A joint tenancy allows more than one person to share equal rights on a property. When one owner dies, their ownership transfers to the surviving tenant(s) via the right of survivorship.

3. Community property: Community property agreements are like joint tenancy. Both parties have equal rights to the property while married. However, when one person dies, their items are subject to the deceased person's will. Each party can, but doesn't have to, will their half of the property to their spouse. They could leave half of the ownership to a child or someone else.

4. Tenancy in common: A tenancy in common allows two people to have ownership rights in a property, but they don't have to be equal. For example, multiple investors could have a tenancy in common, with one investor owning 50% of the property and two others splitting the remaining 50%. This type of ownership can be used to create time-shares.

There are benefits to joint ownership:

• Both parties have the security that they'll still have a place to live if the co-owner dies.
• Parties who share in a co-ownership have rights to any rental income or other profits on the property.

Some cons of joint ownership include:

• Potential for issues in a divorce or if the dying party wills their ownership to someone else.
• Some joint-ownership options may complicate taxes and fiscal responsibility.
• If one party owes creditors, the other owner could face potential problems, even if they didn't benefit from the debt.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.