There is a distinct difference between being on a mortgage loan and being on the title. The person holding the mortgage deed is financially responsible for paying the bank back for the loan. Any late payments negatively affect his credit and the possibility of foreclosure is real. The person who is not on the loan, but holds title is not financially responsible, but can face foreclosure as well. Either way, the mortgage lender has first lien on the property, as does the county, should you let your real estate taxes go unpaid. Let’s take a look at how this happens.
Securing the Mortgage
The first step in the process is obviously securing a mortgage. Unless you can pay cash for the home, you need the funds to pay for the home. Qualifying for a mortgage can be a tricky process. If you don’t have great credit, good income, and a minimal amount of debts, you might find yourself incapable of securing a mortgage. If your spouse or any other person you plan to purchase the home with can qualify on his own merits, however, he may be able to secure financing. If your spouse does secure financing without you, know that this may leave you off the title. Only the borrowers on the deed typically need to be on the title. This is how the lender will have the title recorded with the county. In the event that you stop making payments, the lender can take possession of the home right from the deed holder.
Credit Does not Matter to be on Title
What if you want to have legal ownership despite not being on the loan? People who financially contribute to the monthly mortgage often want their share of ownership. The same is often true for couples who are not yet married or even married couples whether or not they contribute financially. The good news is if you were the one holding back the loan approval, you can still be on the title. This is even true if you weren’t around when your significant other purchased the home. He can add you to the title later down the road. No matter the case, the title company does not pull your credit to see if you are worthy of ownership. Anyone who owns the home and who the person holding the loan agrees to add to the title can be added. However, you should know that even if you are not on the loan, you are susceptible to foreclosure if the mortgage or real estate taxes remain unpaid. The fact that you don’t have a financial responsibility for the loan does not matter.
How to Add to the Title
When you close on the mortgage loan, the title company will secure the home in the name of the person who holds the mortgage. With the lender’s approval, however, you may be able to add your spouse or any other person you wish to add. The key factor, however, is to make sure you have lender approval. There could be fine print that you did not see on your deed that states any transfer of ownership could trigger the “due on sale” clause. This is rare but worth checking with your lender about. If you do trigger this clause, it gives the lender the right to demand full payment for the mortgage on the spot. This is not a predicament you want to experience.
Assuming you have the lender’s approval, you can file what is called a Quitclaim deed. This deed transfers ownership from one owner to joint ownership with whomever he designates. For example:
- Johnny bought his home on his own before he met his girlfriend. They are not engaged to be married and he wants her on the title of the home. While his fiancé is not legally obligated to pay the mortgage, she will have ownership in the property with Johnny’s approval.
In this case, Johnny would file a quitclaim deed to transfer ownership from just himself to ownership between him and his fiancé.
The Types of Ownership
Before you go and transfer the title, though, you should know the different types of ownership. They are:
- Joint with rights of survivorship – This means each of you owns 50% of the home or equal parts, if there are more than 2 owners. In the case of the death of one person, the other person takes full ownership of the property.
- Tenancy in common – This means you each own a portion of the home, but one person may own a larger share than the other. This usually occurs between owners who are not married and where one owner handles a majority of the payments for the house.
Understanding the Difference
It is important to understand the difference between being on the mortgage and being on the title. When you own part of the property but are not on the mortgage, you do not get the financial benefits the person on the mortgage gets. For example, you cannot write off the mortgage interest on your taxes. However, if you are married and file jointly, you get the benefit of the interest write-off because your spouse can claim them.
Timing of the Transfer
If your co-owner will not be on the mortgage for one reason or another, you have to wait to transfer title until you close on the loan. Again, make sure the lender knows your intentions so that he can verify your ability to do so without risk of penalty. Typically, however, you can transfer the title immediately following the closing. You will have to pay the transfer taxes and any recording fees that coincide with the new deed, however.
Many people choose to stay off the mortgage in order for their spouse or significant other to secure better financing terms. This is perfectly acceptable. If you want ownership in the property, the transfer of the deed is typically rather easy. Always be upfront with your lender to let him know what you plan to do and get help with the deed transfer process. Your title company can likely help you complete the process so that the documents are properly recorded with the county so the ownership is perfectly legal.