Whose Name Goes on the Title and Mortgage Deed?
When a couple buys a home, whose name goes on the title and whose name goes on the mortgage deed? For many homebuyers, the simple answer will be that both names go on everything. However, there are always exceptions, often with good reason. Here are a few things to know about this complex topic before you buy.
What’s the Difference: Title Versus Mortgage
To start, it’s worth clarifying for the uninitiated that a property title and mortgage deed are not one in the same. The legal term “title” refers to the rights of ownership. A title grants a person or persons exclusive use, possession, and transfer of ownership rights for a given real estate property. On the other hand, a mortgage, or in some states a “deed of trust,” pledges real property to secure a loan.
Just over half of buyers will use a home loan to purchase their home, meaning they will have both a title and a mortgage. For these folks, a decision will need to be made about whose name goes on the title and the mortgage. Since these documents are not the same, the answer for each could vary.
Leaving a Spouse Off the Mortgage
For some couples, there may be a good reason to apply for a mortgage under only one name. Mortgage lenders typically apply a “minimum FICO” rule, where the credit score used to judge the mortgage application is the middle-lower score of the two applicants. If one spouse has bad credit, it could affect the interest rate they qualify for and lead to higher costs.
A short or unusual work history is another common reason some couples forego a joint mortgage application. Many lenders have what’s called “2/2/2” documentation requirements — two years of W2 income statements, two years of tax returns, and two months of bank statements. If one spouse has a shorter work history or can’t provide such documentation, as in the case of self-employment, it may be easier for the other spouse to get approved singly.
Saving Money by Applying for a Loan Alone
Recently, the Washington Post reported on a 12-year study by the Federal Reserve that found many couples were leaving money on the table by applying jointly when one spouse could have qualified for the mortgage alone. The results were striking.
Out of more than 600,000 conventional loans issued between 2003 and 2015, 10 percent could have qualified for a lower interest rate by having the better-qualified buyer apply alone. The report noted, “Nearly 10 percent of prime borrowers who applied for their loans jointly could have lowered their mortgage interest rate at least one-eighth of one percentage point if the mortgage was applied for by the applicant with a higher credit score and an income high enough to qualify for the mortgage.” Fed economists revealed that a further 25 percent of borrowers could have “significantly reduced” the cost of their loan by having the more qualified borrower apply singly.
How Both Names Can Be on the Title and Not the Mortgage
The same Washington Post article notes that many couples applying for a home loan have strong feelings about applying jointly for their mortgage. “They are buying the house together and there’s a feeling of joint ownership that’s important to them, even though both could be on the legal title to the house without both being on the mortgage,” noted the news outlet. Furthermore, this arrangement is available to both married and unmarried couples.
How can this be? A mortgage deed involves an agreement to pay back the loan amount borrowed to purchase the home. The title, however, is a separate matter of ownership entirely.
Issues Raised by Title and Deed Assignment
Of course, owing to the complex regulations and laws regarding real estate, whose name is on what document can make for some complex situations.
Divorce is a common issue for homes with a joint mortgage or title. If a home is paid for, attorneys will generally look for a way to divide up the assets. Often this is accomplished through a quitclaim deed, where one party gives their ownership rights over to their former spouse. If there is a mortgage loan on the property, attorneys then look at ways to divide liabilities. The party who remains in the home will often refinance the loan individually before the other party cedes ownership through a quitclaim.
Another common question is what happens to a title and mortgage when one spouse dies. As with many matters in real estate, it often depends on location. The laws governing property transfer upon death and inheritance are largely decided at the state level, and not all states agree on the best way to go about this.
About half of U.S. states allow Transfer-on-Death deeds, also called beneficiary deeds. These allow real estate ownership to be transferred upon a person’s death without a living trust or probate court proceedings. For other states, interstate succession laws may apply.
For homes with mortgages where the sole mortgage holder has died, the mortgage generally must continue to be paid to avoid foreclosure. This situation is complex, and mortgage insurance coverage, life insurance benefits, the assumption of the mortgage, or refinancing of the loan may come into play in the solution.
Other unique situations arise in some states. In Texas, one law firm points out the many factors to consider before adding a new party to a deed. In Alabama, the Homestead Law adds complexity to some real estate transactions to ensure a spouse doesn’t sell or refinance the family home without the knowledge or permission of the other cohabitating spouse.
Lastly, homebuyers should be aware of tax issues related to whose name is on the mortgage and title. Generally, the party who pays the mortgage can take advantage of the Home Mortgage Interest deduction, even if they are not named on the mortgage, as long as they are named in the title. Moreover, a recent appellate court decision will reportedly let some coupled, but unmarried, homeowners with jumbo mortgages take advantage of even bigger deductions.
When to Ask a Professional
If you’re in the market for a new home, you may be wrestling with your decision about whose name should go on what document. Even if you already own your home, you may have questions about your title or mortgage.
In either case, it’s crucial to get expert advice from a professional real estate attorney with experience handling these matters in your area. Location is the name of the game in real estate and what’s true for one owner may not be true for another. Similarly, it’s a must to check with a certified tax professional before attempting to claim any tax benefit. These professionals exist to handle such complex questions and can help tailor a solution that fits your unique situation.