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Suppose there is a couple, Clayton and Emma. Clayton is 26 and has a good job making over $75k a year, Emma is 20 and still in college (she doesn't have any student loans but she has no job and no credit). Suppose this couple is not yet ready for marriage but they want to buy a house together.

Chances are only Clayton will get approved for a mortgage because he has income and credit. In this case can the title of the home still be held by both?

Would the lender (bank) have any reservations about this since a party not on the mortgage has ownership of the property?

mattm
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AbuMariam
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    If you aren't ready for marriage, good advice is to not buy a home together. It complicates the financial impact of possible separation, which can increase the strain on the relationship. Instead consider having the more financially ready person buy the house, and the other person pay rent. – Grade 'Eh' Bacon Oct 31 '17 at 14:06
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    @jamesturner And if my wife reads that, let me make it perfectly clear for everyone that I disagree with your interpretation of my comment! – Grade 'Eh' Bacon Oct 31 '17 at 17:42
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    @jamesturner almost as bad? A shared mortgage binds you together much stronger than marriage; in marriage, there's always the option of divorce (that quite many couples take), but you're simply not getting out of a shared mortgage, it'll tie you for decades. – Peteris Oct 31 '17 at 17:56
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    Why would Clayton give half a house to Emma for free? That's quite a present, and he had to take out a mortgage to afford it. – RemcoGerlich Oct 31 '17 at 19:38
  • If it's "Just a bit of fun" a) don't buy a house and b) does she know that? ... If Clayton doesn't want to marry her he should tell her, so she can get on with her life. If he does, he should ask her.... – Ben Oct 31 '17 at 19:51
  • I'm no expert, but isn't this exactly what family trusts are for? Consider establishing a family trust in the name of Clayton, and have the trust buy the house. – Criggie Nov 01 '17 at 01:42
  • @Peteris: Sure there is: default. It may not be pleasant but it's a way out. – R.. GitHub STOP HELPING ICE Nov 01 '17 at 02:46
  • @RemcoGerlich Why do people with assets get married, sometimes to people with fewer assets? – jwg Nov 01 '17 at 12:29
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    @jwg: well they often sign prenups if the difference in wealth is huge. But he says they aren't ready for marriage yet, I'd say taking out a loan to buy her half a house is more serious than marriage. – RemcoGerlich Nov 01 '17 at 12:39
  • There's an implicit inequality between a person who decides to move into a house owned entirely by another person. In the event that things go sour, the owner can effectively kick the other person out of the house without any means of reclaiming the personal property that the non-owner brought (in some states). In other cases the non-owner may legitimately have no where else to go and, if kicked out, becoming homeless. In my interpretation of this problem, Clayton is being quite noble in extending a guarantee to Emma that this won't happen. –  Nov 01 '17 at 19:38
  • In the Netherlands, you can get a contract stating you live together, possibly being totally irrelevant to having a romantic relationship.

    I would expect the US to have something simular? I mean is everyone still getting married there? it's getting less and less common here.

     – Mathijs Segers Nov 02 '17 at 11:10
  • It is very strongly against Clayton's interest to put her on title before marriage and before she starts making any payments or is capable of making any repayments; the lender won't see having her on the loan as a plus. If they split up or never get married, he has now given her part of the house (depending on the laws of the country and state they live in). The alternative is simply for Clayton to take title and make mtg payments. To be clear how they characterize any payments she makes him before marriage as 'rent' or 'mortgage', they may want a lawyer to draw up a Living-Together Agreement – smci Jul 02 '18 at 05:42
  • @MathijsSegers: Living-Together Agreement / Contract or Cohabitation Agreement. The legal situation will vary hugely depending on the laws of the country and state. Most lawyers offer a free half-hour or hour initial consult. It is possible for them to separately consult lawyers. To repeat, if they are "not yet ready for marriage" then adding her to title of a property where only he pays mortgage (and sounds like she won't pay for at least a decade, if ever) amounts to him voluntarily incurring a huge ongoing financial risk, for no rational reason whatsoever. – smci Jul 02 '18 at 05:59

7 Answers7

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It is highly unlikely that this would be approved by a mortgage underwriter.

When the bank gives a loan with a security interest in a property (a lien), they are protected - if the borrower does not repay the loan, the property can be foreclosed on and sold, and the lender is made whole for the amount of the loan that was not repaid.

When two parties are listed on the deed, then each owns an UNDIVIDED 50% share in the property. If only one party has pledged the property as surety against the loan, then in effect only 50% of the property is forecloseable. This means that the bank is unable to recoup its loss.

For a (fictional, highly simplified) concrete example, suppose that the house is worth $100,000 and Adam and Zoe are listed on the deed, but Adam is the borrower for a $100,000 mortgage. Adam owes $100,000 and has an asset worth $50,000 (which he has pledged as security for the loan), while Zoe owes nothing and has an asset worth $50,000 (which is entirely unencumbered). If Adam does not pay the mortgage, the bank would only be able to foreclose on his $50,000 half of the property, leaving them exposed to great risk.

There are other legal and financial reasons, but overall I think you'll find it very difficult to locate a lender who is willing to take that kind of risk. It's very complicated and there is absolutely no up-side.

Also - speaking from experience (from which I was protected because of the bank's underwriting rules) and echoing the advice offered by others on this site: don't bother trying. Commingling assets without a contract (either implicit by marriage or explicit by, well a contract) is going to get you in trouble.

Istanari
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    "When two parties are listed on the deed, then each owns an UNDIVIDED 50% share in the property." It's important to point out that there's an exception to this rule in most states, but it's only available to married couples. – David Schwartz Oct 31 '17 at 18:23
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    This is a much better answer IMO, considering that it actually answers the questions posed and doesn't make assumptions about the OP. +1 – glassy Oct 31 '17 at 18:47
  • I would argue that even a 50% foreclosure is impossible, because normally no one would buy a 50% share of a house. Also If Zoe got to own a $50,000 part of a house, this would have to be some sort or income or gift and you would possibly create tax problems with lent money. – Daniel Nov 01 '17 at 12:39
  • @Daniel: I personally know someone who bought (something like) 92% of a property. This is actually very common - inheritance creates these partial-ownership situations all the time, and it does get complicated when one owner does not wish to sell but cannot buy out the other owners. To your second point - there would likely be no "income" involved. It's likely to be treated as a gift, for which the first $14,000 is tax-free and the rest is simply counted against the $5,490,000 lifetime exclusion. (Tax Year 2017 figures) – Istanari Nov 01 '17 at 13:41
  • My partner and I are joint tenants on our house and are both listed on the mortgage. However, the underwriters only used my financial information to qualify for the mortgage because he had a ding on his credit report and it would have affected the interest rate. So it is possible. – mkennedy Nov 02 '17 at 00:22
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    @mkennedy That's different - the mortgage is still in both your names, you just qualified on the merit of a single person in the partnership. OP is asking about having a single person listed on the mortgage but both on the title - this isn't possible. The only solution is for them to also share the mortgage (as you did). – J... Nov 02 '17 at 12:20
  • @Daniel Not applicable here, but in Germany, any creditor can force a public auction of any undividable property that a defaulting debtor holds jointly with others. The creditor will then receive the share of the proceeds according to the debtor's share in the property, up to the owed amount. The other joint owners can bid and buy the property, effectively paying for the debtor's share at market value, but they cannot prevent the auction. – I'm with Monica Nov 02 '17 at 12:36
  • @Alexander Kosubek: Yes, but that´s exactly what I am talking about. It can go into auction but it will not fetch a good bid, if any. The "security" of foreclosure is only worth as much as the bank will think they can get from it. and 50% undivided is not worth half as much as 100% in such an event. – Daniel Nov 02 '17 at 12:51
  • In fact I have seen a property recently, here in Germany, which came up for auction for the fourth time. it was valued at 250.000 €, but hat a lifelong living right for the father of the debtor attached. Did not get any bids ... – Daniel Nov 02 '17 at 12:55
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I will expand on Bacon's comment.

When you are married, and you acquire any kind of property, you automatically get a legal agreement. In most states that property is owned jointly and while there are exceptions that is the case most of the time.

When you are unmarried, there is no such assumption of joint acquisition. While words might be said differently between the two parties, if there is nothing written down and signed then courts will almost always assume that only one party owns the property.

Now unmarried people go into business all the time, but they do so by creating legally binding agreements that cover contingencies. If you two do proceed with this plan, it is necessary to create those documents with the help of a lawyer. Although expensive paying for this protection is a small price in relation to what will probably be one of the largest purchases in your lives.

However, I do not recommend this. If Clayton can and wants to buy a home he should. Emma can rent from Clayton. That rent could any amount the two agree on, including zero. If the two do get married, well then Emma will end up owning any equity after that date. If they stay together until death, it is likely that she (or her heirs) will own half of it anyway. Also if this house is sold, the equity pass into larger house they buy after marriage, then that will be owned jointly.

If they do break up, the break up is clean and neat. Presumably she would have paid rent anyway, so nothing is lost. Many people run into trouble having to sell at a bad time in a relationship that coincides with a weak housing market. In that case, both parties lose.

So much like Bacon's advice I would not buy jointly. There is no upside, and you avoid a lot of downside.

Don't play "house" by buying a home jointly when you are unmarried.

Pete B.
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  • Thanks for the answer, but suppose Clayton loves Emma so much that he wants her name to be on the house as well even though he is not able to legally marry her at the moment (for another complicated reason), would that still be possible? That is the crux of my question? Can one person be on the mortgage but both own the property? – AbuMariam Oct 31 '17 at 14:29
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    As I said, it doesn't matter. If they do get married then nothing is lost. If they don't the break up is clean. Love has nothing to do with it. However, you can always draw up legal documents that say she owns half the property, but in most jurisdictions she cannot be on the deed. – Pete B. Oct 31 '17 at 14:30
  • She cannot be on the deed because she is not on the mortgage? – AbuMariam Oct 31 '17 at 14:36
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    This is mostly decided by the mortgage company, but could also be a law. Think about it: If you were lending money for someone to buy a house, would you let someone else own part of it that was not responsible for the loan? Of course not. – Pete B. Oct 31 '17 at 15:00
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    @PeteB. Why not? The lien will not depend on who gets title to the property at closing. The lender will only care that they have a clear lien. – user4556274 Oct 31 '17 at 15:05
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    @AbuMariam you should know that love makes people irrational. This is most definitely one of those cases. – RonJohn Oct 31 '17 at 16:50
  • Just what interest Emma acquires in the house will surely depend on the jurisdiction they live in. – chepner Oct 31 '17 at 18:14
  • @AbuMariam If he really wants to do something like that, at least limit it to the value of the house minus the unpaid part of the loan. You really don't want to end up in a situation where one person is solely responsible for the debt while the asset is shared. – CodesInChaos Nov 01 '17 at 10:32
  • @AbuMariam: Basically, Clayton loves Emma so much he wants to make her the gift of owning half a house, but he can´t pay for it. It´s a little bit like wanting to give her a really expensive diamond ring but having to lend the money... – Daniel Nov 01 '17 at 12:49
  • @PeteB. Is there any legal importance to having Emma pay rent (versus letting her live there at no cost)? – JBC Nov 02 '17 at 14:29
  • @JBC: you mean is there any legal importance to E. paying rent vs living at no cost, pre-marriage and while not holding title? That might be more an issue of landlord-tenant law than property law. If he allowed her to live there rent-free for n years then they split up (without marrying), she might try to refuse to move out and claim she was a sitting tenant. It is better to have written agreement to be crystal clear on who owns what, who's paying who how much and whether that's mortgage, rent or living expenses, and a dissolution clause. Drafted by a competent lawyer, signed by both parties. – smci Jul 02 '18 at 06:10
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In this case can the title of the home still be held by both?

Yes, it is possible to have additional people on title that are not on the mortgage.

Would the lender (bank) have any reservations about this since a party not on the mortgage has ownership of the property?

Possibly, but there is a very simple way to avoid this. Clayton could simply purchase the home himself, and add Emma to the title after closing by recording a quitclaim deed. The lender can't stop that, and from their point of view it's actually better, since they have two people to go after in the case of default. (But despite it being better they often make it difficult to purchase

Tip, when you have an attorney draft the quitclaim document, have them draft the reverse document too. (Emma relinquishing the property back to Clayton.) There is usually no extra charge for this and then you have it if you need it. For example, you may need to file the reverse forms if you want to refinance.

As a side note, I agree with Grade 'Eh' Bacon's and Pete B.'s in recommending that Clayton and Emma do not do this. Once they are married the property will either be automatically jointly owned, or a spouse can be added to the title easily, and until they are married there are no pros but many cons to doing this. Reasons not to do it:

  1. It can make refinancing more complicated.
  2. It's possible that if the market takes a dive and takes the home value down with it, this could create a liability for Emma that she otherwise would not have.
  3. If Clayton defaults the bank can try to go after Emma.
  4. If Clayton and Emma ever break up, undoing this takes action.

As a side note, in a comment it was proposed:

...suppose Clayton loves Emma so much that he wants her name to be on the house...

I understand the desire to do this from an emotional point of view, but realize this does not make sense from a financial point of view.

TTT
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    What do you mean by "Once they are married it is automatic so isn't necessary"? Also, while a lender can't stop you from filing a quit-claim deed, are you sure it wouldn't trigger the due-on-sale clause standard in most mortgages? Maybe it depends on the state? – Hart CO Oct 31 '17 at 17:21
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    @Hart CO: Once they are married, the house becomes community property, at least in the absence of a prenuptual agreement, as long as they stay married. What happens in the event of a divorce varies by state, – jamesqf Oct 31 '17 at 18:06
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    @jamesqf: not necessarily. It would depend greatly on the laws of the state in which the property is owned, as well as the state in which the couple resides. In most cases, the portion of the property owned before the marriage will remain the separate property of the buyer, while the portion of the property paid for with commingled funds (after the marriage, regardless of where the funds came from) would then be community property. Then there's taxes and appreciation to consider. This can be an incredibly complex issue. – Istanari Oct 31 '17 at 18:09
  • @jamesqf There are only 9 community property states. – Hart CO Oct 31 '17 at 18:17
  • @HartCO - thanks for pointing out automatic isn't in every state. I updated to clarify. As for due-on-sale clause, once married that clause is not relevant. If not married yet, it's "possible" but extremely unlikely and isn't designed to call the note due when someone is added, but rather for when the title is completely transferred. It doesn't make sense for a lender to call a note due if payments are current and the owner is still on title. I did this once for a legal reason and even asked my bank beforehand. They laughed and basically said no way are they going to call it due for that. – TTT Oct 31 '17 at 19:42
  • @TTT I didn't think it was common, but I thought in some states you needed to clear it with the lender, wasn't sure. Good update. – Hart CO Oct 31 '17 at 19:47
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    Are you sure this works? Normally a mortgage has terms that the whole loan balance is due immediately under various conditions, including change of ownership. – R.. GitHub STOP HELPING ICE Nov 01 '17 at 02:44
  • @Hart CO: IANAL, you know :-) Perhaps the correct term would be "marital property"? That is, once they marry Emma would have an ownership interest in the property (especially if they continued living there and she contributed to mortgage payments), would inherit if Clayton died intestate, &c. I think the community property distinction mainly applies in the event of divorce. – jamesqf Nov 01 '17 at 02:46
  • @R..: It would seem that it must work, since there are a significant number of people who own homes when they decide to marry. If all those people had to refinance and/or come up with cash, it would present major problems for the mortgage companies. – jamesqf Nov 01 '17 at 02:50
  • @R - It worked for me (to a friend, not a spouse). Any language regarding that will typically include "at the lenders discretion" or similar. But, the bank shouldn't (won't) choose to call it due unless you give them a reason to. For example, if someone is currently in default and then sells a percentage of the home to a friend, I could see a bank taking advantage of that clause to legally speed up foreclosure efforts. They shouldn't (won't) exercise that option though if you are current because the very act of doing so could force a perfectly good loan into default. – TTT Nov 01 '17 at 03:09
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The mortgage and title of the house would be under both your names equally.

When I applied for a mortgage with my girlfriend, I was the primary applicant because of my credit score and she was the secondary because of her income (she makes more).

When all was said and done, it was explained to us that the mortgage was ours equally and so was the house, and that I didn't hold more ownership than her over either.

We were approved quickly and hassle free. This is our first house too. This is in Florida.

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I did that. What is allowed changes over time, though — leading up to the crisis, lenders would approve at the flimsiest evidence.

In particular, my SO had only been in the country a couple years and was at a sweet spot where lack of history was no longer counting against her. Running the numbers, the mortgage was a fraction of a percent cheaper in her name than in mine. Even though she used a “stated income” (self reported, not backed by job history) of the household, not just herself.

The title was in her name, and would have cost money to have mine added later so we didn’t. This was in Texas, which is a “community property” state so after marriage for sure everything is “ours”.

JDługosz
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    Property which was acquired DURING the marriage is community property, while property which was acquired BEFORE the marriage is separate property. It becomes much more complex when community money (income) is applied to separate property assets (taxes, mortgage, upkeep). Separate property does not automatically become community property on marriage. There are other rules - inheritance, for instance, is typically separate property (but the earnings on such are community property). – Istanari Oct 31 '17 at 21:21
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It's not typically possible for someone to jointly own the house, who is not also jointly liable for the mortgage.

This doesn't matter however, because it is possible for two people to get a mortgage together, where only one person's income is assessed by the lender. If that person could get a mortgage of that amount on their own, then the couple should also be able to get the same mortgage.

Source: My wife and I got a mortgage like this. She is self-employed, rather than meet the very high requirements for proving her self-employment income, we simply said that we only wanted my income to be taken into consideration.

jwg
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It depends on the bank - In some cases(mine included :) ) the bank allowed for this but Emma had to sign on a document waiving the rights for the house in case the bank needs to liquidate assets in to recover their mortgage in case of delays or non-payment of dues in time. This had to be signed after taking independent legal advice from a legal adviser.

user2768871
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