Adding Someone to Your Mortgage: A Friendly Guide
Okay, so you're thinking about adding someone to your mortgage, eh? That's a pretty big step, so let's walk through it like we're chatting over a cuppa. Consider me your friend who's seen it all when it comes to mortgages – I've got some practical advice to share, based on what I've seen work (and what definitely doesn't).
1. Hitting Up Your Bank First: A Reality Check
The first thing you'll want to do is give your current lender a bell. Seems like the obvious move, right? Well, more often than not, they're going to tell you they can't just add someone to your existing mortgage. It's usually a "computer says no," unfortunately. What they'll likely suggest is a refinance – basically, you're taking out a brand new mortgage. That's just how it normally goes. Now, there’s a sliver of hope if your loan is "assumable," but those are pretty rare these days, especially with FHA loans.
Tip: Don't get disheartened if your bank says no. It's standard practice, not a personal rejection.
2. Shopping Around: Don't Marry Your Bank (Unless You Really Love Their Tea and Biscuits)
Since a refinance is likely on the cards, why not see what else is out there? Don't feel tied to your current lender. The mortgage market is competitive, and you owe it to yourself to shop around. Compare different loan programs, looking at interest rates, loan terms, and all those pesky fees. Websites like NerdWallet or Bankrate are great for side-by-side comparisons. You might be surprised what you find – there are some real steals out there.
Local Context: In the UK, comparison sites like MoneySuperMarket and Compare the Market are also popular for finding the best mortgage deals. Don't forget to check with local building societies too - they sometimes offer more personalized service.
3. Getting Your Ducks in a Row: Loan Application Prep
While you're scouting lenders, it's a good idea to start gathering the documents you'll need for a standard mortgage application. Think names, National Insurance numbers, income details, and your existing debts. You and the person you're adding will also need to dig up:
- Recent payslips (usually the last three months)
- Bank statements (covering the same period)
- Your last two years of tax returns (P60 forms or self-assessment forms)
It's a bit of a paper chase, but hey, you've got to do it. Consider it mortgage boot camp.
Action Step: Create a folder (physical or digital) to store all these documents. It'll save you a lot of hassle later.
4. Playing Nice with Your Lender: The Underwriting Gauntlet
Once you've picked a lender and submitted your application, the underwriting process begins. This can take a few weeks, sometimes longer. The lender will be scrutinizing everything – your income, credit history, the whole shebang. If they ask for more info or have questions, jump on it! The quicker you respond, the smoother things will go. I once had a lender who took their sweet time responding, and it dragged the whole process out. Believe me, staying proactive is the name of the game.
Common Question: Why does underwriting take so long? The lender needs to verify all the information you provided and assess the risk involved. It's a thorough process.
5. Sealing the Deal: Sign on the Dotted Line and Pay Up (Those Closing Costs)
Okay, you've made it! The loan is approved, and it's time to sign those documents and pay the closing costs. Bam! You've officially added someone to your mortgage. But hold on a second, before you pop the champagne, let’s be sure this is the right move for everyone involved.
6. "The Talk": Financial Transparency is a Must
Before you even think about adding someone to your mortgage, have a serious, no-holds-barred conversation. You probably have a general idea of their financial situation, but now's the time for the nitty-gritty details:
- Income: How much do they earn? Is it a stable job, or more freelance work?
- Debt: Student loans? Credit card bills? Be specific. What about car finance?
- Credit Score: This is key. Get their actual score. You can check this on sites like Experian or Equifax.
- Past Issues: Any bankruptcies or Individual Voluntary Arrangements (IVAs) in the past six years? Those are red flags that need to be addressed.
This isn't about being nosy; it's about understanding the complete financial picture before you tie the knot, mortgage-wise. Think of it as a financial pre-nup!
7. The Good, the Bad, and the Credit Score Ugly
Let's talk about how the other person's finances can impact your chances. The lender will look at both of your credit histories. The better the credit, the better the odds. Ideally your credit is great (750+ on the US FICO score scale, or a "good" to "excellent" rating in the UK), and their credit is solid. But a lower score could hurt you. Lenders often focus on the lower of the two scores, which could mean less favorable terms or even a denial.
Example: If your credit score is 780 and theirs is 620, the lender might use the 620 score to determine your interest rate, potentially costing you more in the long run.
8. Interest Rates – Friend or Foe?
Now, let's talk interest rates. Have rates dropped since you got your original loan? Fantastic! This could mean better terms if you refinance. But if interest rates are higher, be extra cautious before you commit to refinancing. Run the numbers to see if the lower monthly payment is worth the increased overall cost.
Tip: Use a mortgage calculator to compare different scenarios and see how interest rates affect your monthly payments and the total amount you'll pay over the life of the loan.
9. Prepare to Pay: Those Closing Costs are Back in Town!
Refinancing means you're looking at paying conveyancing fees all over again. And they can be significant – typically between £1,000 and £3,000 in the UK. These cover things like legal fees, valuation fees, and stamp duty (if applicable). Ouch.
10. Consider Adding to the Deed: Ownership Without Refinancing
If you want someone to have a stake in the house without the hassle of refinancing, you could add them to the deed. They wouldn't be legally liable for the mortgage, but they would be part-owners. Just be aware that this can have tax and legal implications, so consult with a pro.
Caution: Adding someone to the deed gives them ownership rights, even if they're not contributing to the mortgage payments. This can complicate things if you decide to sell the property later.
11. Private Agreements: Sometimes Simpler is Better
Sometimes, adding someone to the mortgage just isn't necessary. Consider a private agreement. They pay you rent, or you both contribute to a joint account to cover the mortgage payments. This can work well, especially if you're a couple just starting out. If you're married, your spouse will usually inherit the mortgage if something happens to you.
Tip: Even with a private agreement, it's wise to have a written record of how finances are being handled.
12. Talk to a Lawyer: Your Most Important Step (Seriously!)
This is the most crucial piece of advice I can give you. No matter what you decide, have a sit-down with a solicitor. They can help you plan for any potential problems down the road. Life throws curveballs, and you need to be prepared. Here's what you should discuss:
- How Will Costs Be Divided? How much will each person contribute to the mortgage? What happens if someone loses a job or declares bankruptcy?
- What Happens if Things Go South? How will you handle a breakup? Will the house be sold? Who is responsible for ongoing costs?
- What About Death? Make sure the necessary legal documents (like a will) are in place to ensure your home goes to the right person.
Adding someone to your mortgage is a major decision – it's not like popping down the shops for a pint of milk. But with careful planning, a bit of elbow grease and proper legal advice, you can make the best decision for you both. Good luck, and don't be afraid to ask for help along the way!