A joint mortgage has become an increasingly popular choice for couples, friends, or family members looking to buy a property together. By pooling financial resources and combining incomes, a joint mortgage can increase the amount you can borrow and make it more feasible to purchase a larger or more expensive property. But how much can you borrow for a joint mortgage? In this article, we will explore the factors that influence the amount you can borrow, the benefits and risks of a joint mortgage, and tips for making the most of your joint mortgage application.
Factors influence the borrowing amount
Lenders typically base the amount you can borrow on your combined income. Generally, you can expect to borrow between 4 to 4.5 times your combined annual income. Some lenders may offer up to 5 times your income, depending on your individual circumstances and credit history.
A strong credit history for all applicants will significantly increase the amount you can borrow. Lenders will assess each applicant’s credit history, and a poor credit history for one applicant may negatively impact the overall borrowing amount.
Debt-to-income ratio (DTI)
Lenders consider your debt-to-income ratio (DTI) when assessing your joint mortgage application. A lower DTI ratio indicates a lower risk for lenders, which may result in a higher borrowing amount. Aim to keep your DTI ratio below 36% to maximise your chances of securing a larger mortgage.
Loan-to-value ratio (LTV)
The loan-to-value (LTV) ratio is the amount of the mortgage loan compared to the value of the property. A higher LTV means a larger loan, but it also means a higher risk for the lender. Generally, lenders offer the best interest rates and borrowing terms for LTV ratios of 80% or lower.
Lenders conduct an affordability assessment to ensure you can afford the mortgage repayments. This includes evaluating your income, expenses, and any existing debts. Lenders will also stress-test your finances against potential future interest rate increases to ensure you can continue making payments even if rates rise.
Benefits of a joint mortgage
Higher borrowing power
By combining incomes, joint mortgage applicants can increase their borrowing power, enabling them to purchase a more expensive property or secure better mortgage terms.
Shared financial responsibility
A joint mortgage allows applicants to share the financial responsibility of repaying the mortgage, which can make monthly repayments more affordable.
Improved credit score
If all parties make regular, timely mortgage payments, a joint mortgage can help improve each applicant’s credit score over time.
Risks of a joint mortgage
If one applicant contributes more financially to the mortgage or property, disagreements can arise over ownership and responsibility for repayments.
In the event of a relationship breakdown between applicants, it can be difficult to agree on how to manage the mortgage and property.
Negative credit impact
If one applicant fails to meet their financial obligations, it can negatively impact the credit scores of all parties involved.
Tips for maximising your joint mortgage borrowing amount
Improve your credit score
Ensure all applicants have a strong credit history by paying off any outstanding debts and making timely bill payments.
Lower your debt-to-income ratio by paying off existing debts and avoiding new loans or credit cards in the months leading up to your mortgage application.
Save for a larger deposit
A larger deposit will lower your LTV ratio, making you a more attractive borrower and increasing the amount you can borrow.
Consider using a mortgage broker
A mortgage broker can help you navigate the mortgage market, find the best deal for your situation, and advise you on the most appropriate lenders for your joint mortgage application. They can also assist in negotiating better terms and rates, potentially increasing the amount you can borrow.
Be transparent with your co-applicants
Open communication with your co-applicants is crucial for a successful joint mortgage application. Discuss financial expectations, commitments, and responsibilities before applying to ensure everyone is on the same page.
Have a contingency plan
It’s essential to have a contingency plan in place in case of relationship breakdowns, changes in financial circumstances, or other unforeseen events. Consider creating a legal agreement that outlines the rights and responsibilities of each applicant, such as a cohabitation agreement or a declaration of trust.
In summary, the amount you can borrow for a joint mortgage depends on various factors, including combined income, credit history, debt-to-income ratio, and loan-to-value ratio. By improving your credit score, minimising debt, saving for a larger deposit, and considering the use of a mortgage broker, you can maximise your joint mortgage borrowing amount. Keep in mind the benefits and risks associated with a joint mortgage, and maintain open communication with your co-applicants to ensure a successful application and property purchase.