When a couple purchases a house, whose name gets written on the title and whose name goes on the mortgage deed? For most homebuyers, the simple answer will be that both names go on both documents. But there are always exceptions with good reason. Here are a few things to know about this complex topic before you buy a home.
What’s the Difference Between Title and Mortgage
It is worth clarifying for the uninitiated that a property title and mortgage deed are not the same thing. The term “title” particularly refers to the rights of ownership. A title grants an individual or individuals exclusive possession, use and transfer of ownership rights for a given real estate property. A mortgage, called a “deed of trust” in some states, pledges real property to secure the loan.
Just over half of home buyers will use a home loan to purchase their home. This means that they will have both a title and a mortgage. For these people, a decision will need to be made about whose name gets written on the title and the mortgage. Since both documents are not the same, this answer for each could vary.
Leaving Your Spouse Off the Mortgage
There may be a good reason to apply for a mortgage under only one name for some couples. Mortgage lenders usually apply a minimum FICO rule. This is when the credit score used to judge the mortgage application is the middle-lower score of the two applicants. If one person has bad credit, it could affect the interest rate they qualify for and lead to higher costs.
A short or unusual work history is a common reason some couples go with a joint mortgage application. Most lenders have “2/2/2” documentation requirements. This is two years of tax returns, two years of W2 income statements and two months of bank statements.
Saving Money by Applying for a Loan By Yourself
The Washington Post recently reported on a twelve-year study by the Federal Reserve that found many couples were leaving money on the table by applying jointly when one spouse could have qualified for the mortgage alone, and the results were striking.
Out of more than six hundred thousand conventional loans issued between 2003 and 2015, ten percent could have qualified for a lower interest rate by having the better-qualified buyer apply alone.Nearly ten percent of prime borrowers who applied for their loans jointly could have lowered their mortgage interest rate at least one-eighth of one percentage point if the mortgage was applied for by the applicant with a higher credit score and an income high enough to qualify for the mortgage loan. Federal economists revealed that a further twenty-five percent of borrowers could have significantly reduced the cost of their home loan by having the more qualified borrower apply singly.
How Both Names Could Be on the Title and Not the Mortgage
The same Washington Post article noted that many couples applying for a home loan have strong feelings about applying jointly for their mortgage loan. While the couple is purchasing the house together, there is a feeling of joint ownership that is important to them, even though both individuals could be on the legal title to the house without both being on the mortgage. This arrangement is also available to both married and unmarried couples.
But how can this be? A mortgage deed involves an agreement to pay back the loan amount borrowed to buy the home. But the title is a separate matter of ownership entirely.
Issues Raised by Deed and Title Assignment
Divorce is a common issue for houses with a joint mortgage or title. If a house is paid for, lawyers will usually look for a way to divide up the assets. This oftentimes gets accomplished through a quitclaim deed, where one party gives their ownership rights over to the former spouse. If there is a mortgage loan on the home, lawyers then look at ways to divide liabilities. The party who remains in the house will often refinance the loan individually before the other party cedes ownership through a quitclaim.
Another common question is what happens to a title and mortgage loan when one spouse dies. As with most matters in real estate, it oftentimes depends on the location. The laws governing property transfer upon death and inheritance are largely chosen at the state level and not all states agree on the best way to go about it.
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