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Several factors can trigger the decision to transfer a mortgage or add someone to a mortgage. The most common reasons include major life events like marriage or a change in financial capacity. Most people wish to add their spouses to the mortgage, and others may want to share the property costs with siblings, children, or even friends. Whatever the case, having the right information is important.
One of the reasons for adding a borrower could be wanting to share the legal and financial responsibilities of home ownership with your partner but fearing that a verbal agreement may not be enough. Adding their name to the mortgage loan may be the surest way to guarantee their participation in clearing the mortgage. This makes them more liable for the mortgage, which encourages timely payments. A second scenario is whereby you are living with a family member like a child or parent. You may want them to become legal stakeholders by making them part of the mortgage. This can be more challenging and may require adding their name to the deed instead of the loan.
Understanding the potential benefits of adding someone to a mortgage can help determine whether it is the right step for you. The obvious advantage is cost-sharing and ease of the financial burden in managing the debt. The chances of qualifying for higher loan amounts and approval also increase with shared mortgages.
Despite the potential merits, lenders do not usually approve of such changes unless the mortgage is due for renewal. You may add a co-borrower when refinancing the loan because that is when lenders allow changes to mortgage terms, including the payment date, interest rate, and monthly payment. However, refinancing before the end of the loan term involves hefty penalties and is not advisable.
So, can I add someone to a mortgage? We have all the information you need to make an informed decision. Read on to find out.
Understanding Mortgage Loans
A mortgage is a loan used to buy real estate property like a house, land or a business building. Mortgages have extended repayment periods, between 10 and 30 years. The borrower regularly pays the lender during that duration, covering the principal amount and interest. The interest rate can be variable or fixed. The property in question usually serves as collateral – the lender retains the authority to sell it and recover their funds if the borrower fails to repay the mortgage in full.
There are certain criteria that borrowers must meet to qualify for a mortgage loan. Examples include having enough down payment to cover a fraction of the property price, a good credit score, and a steady income. All these factors influence the mortgage amount a borrower gets. It also explains why cases of married couples buying a house under one name in Canada are common. The loan acquisition process can be long and strenuous depending on the mortgage type and the lender’s requirements; therefore, borrowers should work with their preferred lenders.
How Mortgage Loans Work
Mortgages enable the purchase of property without paying the full price upfront – the property is the collateral until the borrower repays the loan and the interest over a stipulated period. That is why mortgages are also called liens. Foreclosure of the property by the lender is allowed if the borrower defaults on the loan.
- 1 Application: The borrower sends an application to one or more lenders with proof of their capacity to repay the loan. That could be in the form of recent tax returns, proof of income or employment, bank statements, and credit scores. Most lenders will conduct a credit check even if the borrower does not attach the credit score.
- 2 Pre-approval: The lender evaluates the application by reviewing all the relevant factors, such as employment history, to determine the risk of default and creditworthiness of the borrower. The application is then approved or declined. If the application is approved, the lender sends a pre-approval letter outlining the mortgage terms, including the interest rate and the approved amount. The lender sets up an appraisal to determine the property value in relation to the mortgage amount. The borrower will have to look for alternative financing if the first lender denies the loan.
- 3 Closing: The final step after the borrower agrees to the loan terms is closing. The borrower signs the mortgage agreement and pays the down payment.
Importance of Names on a Mortgage Loan
One of the common questions in the real estate sector is, can I add my spouse to my mortgage without refinancing? Adding another name to a mortgage without refinancing is impossible because of the responsibility attached to the loan.
Mortgages make home ownership easier for people who do not have the money to pay for such properties. However, mortgage borrowers still require adequate assets and income to qualify for the loan. That is one of the reasons why the applicant should have a good credit score or steady income. The name that appears on the mortgage also indicates the property owner, which is why most people consider adding someone to the mortgage deed as a contingency.
So, should I add a spouse to the house title? The answer usually depends on the specific circumstances and your spouse’s capacity to honor the obligation of having their name on the loan.
How Mortgage Loans Work
The Closing Process
Closing is the final step in the long and meticulous mortgage process – the last stage before the borrower formally owns the property. Several parties participate in the final stages of home buying, and buyers must be well-prepared beforehand.
The loan closing process involves both the property seller and the buyer. The attendants at the closing meeting typically include the closing agent (representing the lender/title company), lawyers representing all parties, a title representative, the buyer, the seller, and sometimes the realtor. The closing agent handles fee distribution accordingly and ensures all the papers are properly recorded and duly signed.
What happens at a house closing for a seller?
The seller signs the purchase agreement and all other relevant documents and then transfers the title to the buyer to hand over the property. Seller concessions are also paid if that was part of the agreement.
The seller should also:
- Accept the purchase agreement.
- Send the seller’s disclosure highlighting details of issues on the property, such as repair history or structural problems. The buyer usually receives that document before the closing and goes through it again at the final walkthrough.
What happens at closing for a buyer?
The buyer becomes the legal property owner after paying the closing costs and signing the contract and all related documents. Closing costs vary but are typically around 2% to 6% of the property purchase price. Sometimes the lender shares such costs depending on the issues on the seller’s disclosure.
Before the closing, the buyer should:
- Open an escrow account to hold the funds and provide earnest money
- Conduct a title search and get a lawyer
- Organize the home inspection
- Start the mortgage process – loan origination, appraisal, credit underwriting, and approval.
- Choose homeowner insurance
- Get finances ready for closing day
As a buyer, you should double-check the documents at the closing meeting to ensure nothing has changed. It also helps to take inventory of all the requirements for the closing to ensure you can produce all forms requested at the last minute.
Since you cannot retract once the deal is final, understand the steps of the closing process in order before the closing date to smoothen the process.
Importance of the closing
Also known as a settlement, a closing settles all the obligations in the sales contract between the buyer, seller, and anyone involved in the closing process, such as your lawyer, realtor, and title company.
Although the home acquisition process can last approximately 30 to 60 days, the closing meeting only lasts a few hours at the lender’s office, realtor’s office, insurance company, or title company. The specific duration of the process depends on several factors, such as the seller’s dependability, the buyer’s organizational skills, and the loan officer’s expertise.
What happens after closing?
As a buyer, you can exit the deal before closing if you change your mind. Doing so afterward is more difficult unless any contingencies were not honored, hence influencing your decision to exit the deal. Most contracts allow buyers to back out after inspections or when unable to secure financing. Once the mortgage loan closing process is over, you can make any changes you want to the property and start paying off the mortgage.
Adding Someone to Your Mortgage Loan After Closing
Can I add someone to my mortgage loan after closing? Making changes after closing is not easy whether you no longer want the property or would like to adjust the mortgage terms. While adding someone to the mortgage can benefit the borrower, it is only possible under specific circumstances.
Why add someone to your mortgage?
Homeowners have various reasons for adding a co-borrower to an existing mortgage, but the most popular reason is a significant life change like marriage or cohabitation. As the property owner, you may have a partner to share all the bills with, but they may not be inclined to keep up with regular mortgage payments if they are not legally bound to the property. A simple verbal agreement may not be enough to ensure they uphold the agreement unless their name is added to the mortgage loan.
Perhaps you have a child, spouse, or parent who legally becomes a stakeholder in your home, even if they are not a co-borrower on the loan. In this case, you have to reach out to your title company and pay the requisite fee to add a co-borrower to your mortgage loan.
Can I add my daughter to my mortgage? You can, through refinancing. Mortgage refinancing is the only way to add someone else to the mortgage loan. Refinancing allows you to change the mortgage term, the borrower’s name, interest rate, and payment date. However, there is no guarantee that the lender will agree to the new deal when you refinance. Most lenders only approve after establishing how the debt will affect them.
Potential implications and considerations
Refinancing a mortgage means applying anew to the same lender or a different one, which is why lenders weigh several considerations when a borrower wants to add a name to a new mortgage. Factors like credit score, income status, and home equity are all considered for the new loan, meaning they influence the new mortgage loan application. The new mortgage will also have new closing costs and home appraisals.
Income and credit score are considered during refinancing but don’t necessarily go together. For instance, your potential co-borrower may have an impressive income and employment history but a poor credit score. Most lenders will consider the credit score instead of the income when determining whether to give the mortgage and the interest to attach to it.
Interest rates can also have a significant impact on your refinancing decision. Borrowers tend to pay more if the interest rates have increased since the first loan, and vice versa. Refinancing also requires home equity of at least 20%, with closing fees of up to 5% of the loan balance.
If the above factors are unfavorable, adding the person to the deed without refinancing will give them a legal stake and make them co-owners. That way, they share the property and may feel responsible for contributing towards the mortgage without any legal obligation. The house legally transfers to them after your death. Although adding a name to the property deed might also be complicated after closing a house, it may be easier than refinancing.
Sometimes refinancing makes sense even though borrowers might endure the high cost of adding someone to a mortgage. Shopping around for the lowest rates by visiting several lenders, especially licensed lenders, is advisable for homeowners who decide to refinance. Understanding the implications of joint mortgage applications beforehand is also important – the lender will consider the credit scores of both borrowers, often settling on the lowest one to determine the interest rate. The borrowers must share all the relevant information with the lender, including employment history, debts, income tax records, and bank statements. The co-borrower must also sign the closing documents to make the deal official.
To maximize the benefits of adding someone to a mortgage, your co-borrower should have a high credit score, a steady income, and a stable job. These factors increase the chances of approval and getting a low interest rate. A co-borrower with strong financial capacity also helps to clear some financial obligations associated with refinancing a mortgage loan, such as closing costs and home appraisals.
Can I add my spouse to my mortgage without refinancing?
Adding a spouse to your mortgage means changing the loan’s terms. Therefore, the lender must create a new loan for you with new terms – refinancing. On rare occasions, lenders may agree to add spouses to existing mortgages, so you can still discuss the option with the mortgage company where you make payments. They may allow the addition if there is proof that your spouse can uphold your loan payments when you are unable to.
The other alternative is adding your spouse to the title deed instead of the mortgage if you want them to inherit the property upon your demise. The property automatically becomes theirs once the loan is paid, even though they are not official co-borrowers on the mortgage documents. You can also get a quitclaim deed outlining all the property details and the expected recipient.
Note: A quitclaim does not help with adding someone to the mortgage deed. It only shows the owner and can be useful in case you divorce and want to remove or add a spouse to the house deed. That means it does not have implications on the financial responsibility or mortgage. However, if the current borrower dies after adding their spouse or child to the quitclaim, the child or spouse assumes the mortgage payments with the existing terms instead of refinancing. Lenders prefer that arrangement rather than setting up a new deal so long as the new owner undergoes underwriting.
Can you add someone to a car loan? There are similarities between car loans and mortgages – adding someone after closing the deal is almost impossible. The best option is to contact a lender and work with an expert who can help you navigate the complex processes. A borrower may also consult a lawyer while comparing all possible solutions.
How to Add Someone to Your Mortgage Loan After Closing?
Step 1: Financial Assessment
Now that you know how refinancing works, the first step to adding someone to a mortgage is evaluating their finances to determine if the move would be beneficial. Get a detailed financial history of the person you intend to add to your mortgage to ensure they can uphold their financial obligations. Ask for actual figures of their income, all their debts, including student loans, recent foreclosures or bankruptcy, and their credit score. These factors highlight the financial capability of the potential co-borrower, which influences the chances of approval.
Lenders only issue the mortgage after considering the creditworthiness of both borrowers. As the current mortgage holder, the lender knows you can pay the debt. That is why they gave the loan in the first place. Adding someone else to the mortgage means the two credit scores and incomes will be critical. For instance, if you have a higher credit score than the co-borrower, the lender will consider the lowest credit score when deciding the mortgage terms. Lenders do not use an average of the two scores.
Also, consider the interest rates. Whether interest rates have fallen or risen since you got your first mortgage will influence payments after refinancing. The lower the interest rates, the more beneficial refinancing will be. Similarly, higher interest rates translate to less favorable mortgage terms.
Step 2: Refinancing Process
Understanding the refinancing process is the best way to determine the cost of adding someone to the mortgage and whether another option might be better. Although the chances of adding another name to the mortgage without refinancing are minimal, you can still contact the lender about the possibility. The lender can provide guidelines for the refinancing process, which means you get a new loan under new mortgage terms.
Note: Adding someone to your mortgage without mortgage refinancing is only possible with assumable mortgages, usually Federal Housing Administration (FHA) loans. Mortgage loans become assumable when the borrower adds a co-owner of the property in a quitclaim deed, and they pass on, leaving the co-owner in charge. The new property owner assumes the mortgage payments under the current terms but undergoes underwriting before the lender approves the arrangement. Loan assumptions work when lenders prefer the existing loan terms to set up a new loan.
As a borrower, you can consult other licensed lenders when refinancing to secure a low-interest rate – you are not under obligation to get another mortgage from the same lender. Compare several offers and pick the one with the best rate. This is one of the benefits of adding someone to a mortgage. When you decide on your preferred lender for refinancing, they will give you the Uniform Residential Loan Application to fill out. Vital information to provide includes details of your debts, your names and addresses, Social Security numbers, and amounts of income. Income tax statements, recent tax statements, and pay stubs are also required.
After finding your preferred lender, underwriting must take place before closing the refinanced mortgage. The lender may ask for additional documents that you, the borrower, should be able to provide promptly to avoid unnecessary delays. The lender will also notify you of a closing date in good time to enable you to prepare the closing costs. Adding the name will finally come during the mortgage closing.
Step 3: Alternative Solutions
Other alternatives to adding someone to a mortgage that would be worth considering include a private arrangement. You can agree with the person sharing the house to split the mortgage costs without a legally binding document. For instance, you can create a joint account for the mortgage payments if it is a spouse or charge monthly rent if it is a parent, child, or friend. The arrangement is more likely to succeed in marriages, where the spouse would assume the mortgage responsibility if you die.
The second option is adding the person to the house deed instead of the mortgage. That arrangement works if they are likely to inherit the property. However, they won’t be legally liable for the mortgage like you. Getting a legal perspective can provide insight into the details and create room for contingencies. Can you add someone to a car loan? A lawyer can answer this and other questions you may have. Other important topics to discuss with the lawyer include the division of the mortgage costs and what happens in case of a breakup or death.
Legal Requirements and Paperwork Involved
A Uniform Residential Loan Application is the first document you will need when you want to refinance a mortgage or add a person. Fill out your social security numbers, the applicants’ names, details of all your debts, and your total income. Bank statements, two most recent tax returns, and paycheck stubs are other documents that accompany the application.
Since refinancing is the only way to change the mortgage terms, both borrowers must sign the closing documents to officialize the new mortgage loan. If approved, changing the terms of the new mortgage will be impossible after closing, so it is advisable to weigh all options and personal circumstances before closing the deal.
Potential Costs and Fees
One major downside of refinancing is high fees. For instance, second mortgages involve closing costs similar to the first loan – between 3% and 5% of the loan balance. Home appraisals are also mandatory, which is another expense for borrowers. There are also penalties for early refinancing, and borrowers must have at least 20% home equity value or 5% for FHA refinance.
Can you add a name to a mortgage without refinancing? Changing or adding a name means you are modifying the mortgage terms, which is different from adding a name to the house deed. Due process is mandatory for the new name to appear on the mortgage records, and it is only possible through refinancing.
However, you can add the person as a shareholder to the house quitclaim deed. They can inherit the house through probate after your demise, which is easier than refinancing. The mortgage lender will require their payment, allowing the new owner to continue with the current mortgage terms instead of setting up new terms through refinancing. The new owner assumes the loan without undergoing refinancing.
How to Add Someone to Your Mortgage Loan After Closing?
Frequently Asked Questions
When can I add someone to my mortgage?
The best time to make adjustments to your mortgage is when it is due for renewal if you want to avoid a long and possibly expensive process. Alternatively, you can refinance your mortgage before the term expires and pay any attached penalties.
Is adding a borrower a changed circumstance?
Adding a co-borrower before closing is not a changed circumstance. However, adding a co-borrower after mortgage closing is not possible without refinancing.
Can two people have the same mortgage?
Joint mortgages involving two or more people are possible. Each borrower is required to fill out an individual loan application, or together all borrowers can fill out a joint loan application. Upon approval, the loan will bear the names of all applicants. Each joint mortgage borrower is responsible for repaying the loan.
Whose credit score is used on a joint mortgage in Canada?
Both credit scores are used. Lenders usually choose the lower middle score of the two borrowers. Therefore, it is in your best interest to ensure the person you take a joint mortgage with has a high credit score and a steady income.
Can I add a co-borrower to an existing loan?
You can add a co-borrower to an existing loan through mortgage refinancing. Reach out to your mortgage lender to discuss the possibilities.
Conclusion
Can someone be added to an existing mortgage? Adding another person to an existing mortgage can be demanding, but it can also be beneficial if the potential co-borrower has a high credit score and steady income.
Refinancing provides you with the opportunity to negotiate for better mortgage terms and make other changes, like sharing the mortgage costs with someone – whether a friend, spouse, parent, or child. However, refinancing comes with potentially high financial costs. That is why borrowers should consider all other alternatives that do not require refinancing, like a private verbal agreement. Comparing the possible pros and cons of all options according to your financial circumstances can help you make the best decision. If you choose to add someone to an existing mortgage through refinancing, consider all fees and penalties associated with the move.
It is also important to seek expert advice. Turkin Mortgage has a knowledgeable team. Do you want to refinance, add a new name to the house title, or use a quitclaim deed? Are you wondering whether you can add someone to your mortgage in Canada? Contact us today. Our experts will help you overcome the hurdles of negotiating the best mortgage terms to ease your home ownership journey.
