Monthly Archives: April 2014

Joint Mortgage and Joint Ownership: Which is the Better?


A joint mortgage meaImagens nothing more than that two people are sharing the responsibility for paying the mortgage loan. Both names are included on the loan agreement, and both are equally responsible for ensuring that the mortgage loan is repaid as contracted.  It does not infer that each has a share in the ownership of the property.

For example, you could have a parent help you to purchase your home by agreeing to have their name stated on a joint mortgage. This gives added security to the lender, and will enable the parent’s income to be considered when the total sum you can borrow is agreed. Without the joint mortgage you would have had to purchase a cheaper property.

Joint Mortgage and Joint Ownership Are Not the Same

So Joint Mortgage and Ownership are not the same. The discussion is between a joint mortgage where the risk is shared, and joint ownership, where each party involved in the risk also owns their share of the property. You would think the latter arrangement would be best, but not always.

Sometimes it is not best for ownership of the real estate to be legally shared. One example of this is where a parent has helped a couple to purchase their first home.  Although a joint mortgage would be necessary for this to happen, it would be crass for the parent to then insist on owning a share of the marital home.

Even if ownership has been agreed to be shared, there are options as to the way in which it is shared. There are two basic options you should consider when coming to a joint ownership agreement. You can make the passing on of ownership to your partner automatic on your death, or make it clear in your will to whom ownership should go.

Joint Ownership Agreements

Joint Tenancy Agreement:  There are some legal aspects of joint ownership that should be considered. This can be arranged in two ways. One is Joint Tenancy, where the property is jointly owned and the survivor assumes sole ownership in the event of the other partner’s death. This is the best arrangement for married couples, and should be set up when the mortgage is arranged. It guarantees the survivor to take sole ownership of the property.

Tenants in Common: The other is known as Tenants in Common, where each partner owns an equal share of their home. They can leave that share to whoever they wish in their will. In event of a death, sole ownership would have to be established in probate court. It is feasible in this case for one partner or even both to leave their share in the property to a third party in their will.

Leaving the Mortgage Agreement

It is normally not possible for either partner to leave the mortgage agreement. Both are legally responsible for repaying the mortgage loan. Even if they agree between them, the lender will likely not agree unless they are certain the remaining person has the wherewithal to make the combined payment. Only if the loan is assumable can this be carried out by right, and even then only if the remaining debtor is able to prove continued ability to pay.

Joint Mortgage Vs Joint Ownership: Summary

This is not a choice, and hence not a valid comparison. Joint mortgage and joint ownership are not options as such. You can have one without the other. Two people can jointly pay a mortgage on a home that only one of them owns.  Likewise two people can be legal owners of a home, the mortgage for which only one of them pays.

If this seems confusing, a mortgage professional can help make things clear.  It is essential that you understand these terms before entering into any one of them. You don’t want to find yourself paying equally for a mortgage on a home for which you have no ownership rights – unless it is for your son or daughter!

 

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Ability To Repay a Mortgage: New 2014 Mortgage Rule


The ability to repay a mortgage has always had inherent importance as a factor in the success or otherwise of a mortgag2014 Mortgage Updatese loan application. In January, legislation helped mandate such a requirement.

It is intended to protect borrowers from themselves, and to measure as far as is possible that they are able to repay their agreed mortgage. Adopted by the Consumer Financial Protection Bureau (CFPB), the rule is not only designed to ensure that proper checks are carried out on prospective borrowers, but also to protect them from lending practices that have led to problems in the past.

Here are some of the main points of the new rule.

Verification of Financial Information

In order to establish theer ability to repay a mortgage, lenders must examine documents proving a borrower’s financial status. That includes:

  • Employment status
  • Income
  • Existing assets
  • Existing debt obligations: credit cards, car loans, other mortgages, etc
  • Credit record and history
  • Monthly outgoings
  • Alimony, etc

Each of these must be documented. This means that ‘no doc’ loans will no longer be allowed.  Lenders will not be permitted to offer quick finance without documentation from the borrower. Many past foreclosures were due to lenders failing to identify false financial details from borrowers whose monthly income was too low for the amount of mortgage offered.

Ability to Repay a Mortgage

A mortgage lender must make sure that the borrower has the ability to repay a mortgage before offering it. They should examine the debt to income ratio, and be sure that the monthly repayment can be easily met without hardship. Too many loans have been offered in the past to borrowers who were already overburdened with monthly payments.

Toxic Features Involving Loss of Equity

Loan terms should not exceed 30 years and interest only payments should not be offered. Negative amortization should likewise be stopped. This is the type of loan where the principal increases over time.

These features lead to either static equity at best, or more likely, a loss of equity. The borrower owes more over time than the value of the home. The asset is no longer an asset but a burden: it cannot be sold to cover the amount still owed.

Debt To Income Ratio Caps

In future, mortgages will only be offered where the DTI ratio is less than 43%.  It has often been the case that mortgage loans were offered with DTI ratios well above that, which is a strong indication of an inability to consistently maintain repayments. For a limited period, loans will be offered to borrowers with a debt-to-income ratio of more than 43% if they otherwise qualify for a Fannie Mae or Freddie Mac insured mortgage.

Abolition of Excess Closing Fees

Many people who have been offered a mortgage have been hit hard by unexpected closing or upfront fees. There will be a limit placed upon such fees including those paid to brokers and loan officers.

There are several other factors involved in the ability to repay a mortgage  that will help to prevent lenders from offering loans to those obviously unable to afford the repayments. This is to benefit both lenders and borrowers, since foreclosures benefit nobody. If you intend purchasing property towards the end of this year, keep the above comments in mind.

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