Can you have 2 separate mortgages on the same property

Q My brother owns a flat and wants to sell 50% to me so we jointly own it – but we want separate mortgages. This would be fine in principle but my brother wants to help me with a deposit of 25% to get the best deal. However, I would need to repay him as part of the transaction. What would be the best way to structure this? EK

A Sorry to disappoint, but you are unlikely to be able to have separate mortgages. That is because, typically, all the people registered as owners of a property with the Land Registry have to be signed up to any mortgage on it. The simple reason for this is that if one owner fails to pay the mortgage the lender can pursue the other for the debt. If both – or all – owners default on the loan, the lender can repossess the property. A lender can't, however, repossess half a property, which is another reason that you can't get a half a mortgage.

So the best – and possibly only – way to structure your transaction would be to get a joint mortgage with your brother. You and he also need to consider whether you really want the ownership (as shown on the Land Register) to be split 50-50. If the mortgage you will be sharing with your brother is less than the value of the flat, your brother might prefer to recalculate the percentage shares you each own to reflect any equity he already has in the property.

As you can see, buying two new homes will be different than purchasing a single property, and will come with both greater upfront investment on your part and greater scrutiny on the part of your financial lender. Those seeking to purchase two houses at the same time are encouraged to extensively research this process and know how to best prepare beforehand.

Decide How The Houses Will Be Used

Before shopping around as a potential new home buyer, you’ll need to decide if one of the houses will be used as a second home or an investment property with an eye toward generating rental income. Alternately, you will need to determine if one of these properties will be used as a primary residence or residence for others such as family members. In any event, it’s an important first decision to consider and discuss with your REALTOR® before you submit a mortgage loan application.

Analyze Your Personal Finances

You will also need to assess your personal financial situation to determine whether you can afford two mortgage payments. That means thinking about how much income that you expect to be bringing in both now and potentially in the future, as well as any recurring or one-time expenses that you anticipate incurring going forward. It’s also important to check with credit bureaus, obtain an up-to-date credit report and get the latest insights into your credit score and credit history.

As you go about considering your ability to make multiple payments – a task which mortgage and interest rate calculators can assist with – don’t forget to keep your DTI ratio in mind here as well. Your DTI ratio (which provides a way for lenders to gauge your income against your expenses) will serve as a core guideline for them when considering if it makes sense to extend you a loan on a property.

Hunt For The Perfect Homes

Picking the perfect home takes considerable time and research. Shopping for two at the same time is only more of a challenge. Be sure to talk to your real estate agent about your goals and plans for the two houses that you plan to buy. Searching MLS listings and popular real estate websites, as well as driving around neighborhoods that you’re looking to shop in, can help you find eligible properties. Also make a point to take a tour of any homes (whether via a private showing or open house) that you’re considering purchasing before putting in an offer.

Find The Right Loans For Your Purchases

Happily, there are several loan options available for prospective real estate buyers looking to finance a home purchase if they do not intend to pay for these properties with cash. You’ll wish to consider the pros, cons and particulars of each as you review your options here, and if you have further questions, you may want to consult with your loan officer.

• FHA Loan – Backed by the Federal Housing Administration (FHA), an FHA loan often comes with lower down payments, credit scores and credit history requirements attached. However, certain requirements must be met to qualify for an FHA loan, e.g., the property must be FHA appraiser-approved and utilized as your primary residence, not as an investment property or second home. Bearing this in mind, you may be able to use an FHA loan for one of your properties (if you yourself plan to occupy it within 60 days of closing). However, you can only have one FHA loan out at a time, so you would not be able to use it to purchase your other property.

• VA Loan – VA loans (which are provided by the Department of Veterans Affairs) are a form of military loan that’s available to qualified service members, spouses and veterans. Because the VA offers specific guarantees to private lenders to help underwrite these loans, it reduces potential risk for financial providers and reduces some of the burdens (e.g., in the form of lower interest rates) placed on borrowers. But a VA loan cannot be used to obtain an investment property.

• First-Time Home Buyer Program – First-time home buyer programs are financial incentives programs designed to help support potential home buyers in their initial efforts to obtain real-estate properties. Typically, these loan programs (which may come with lower down payments, interest rates and credit history requirements attached) are crafted in such a way as to make home purchases more accessible. Happily, select first-time home buyer programs options will allow you to purchase two properties, making them a great option for first-time shoppers, especially those seeking a no-down-payment option.

• Home Equity Loan – A home equity loan (often referred to as a second mortgage) lets you tap into equity that you’ve built up in your current home as collateral against which to borrow money. You can also use it as a means through which to finance the purchase of one of your potential two new homes. Be advised though that under the terms of a home equity loan, your current house will be utilized as a form of security to help protect your lender’s investment. That means that your current residence may be put at risk if you wind up defaulting on loan payments when utilizing this type of financing. 

• Conventional Loan – A conventional mortgage loan can be used at the same time on multiple properties. But it’s not uncommon to see larger down payments attached to such loans or for lenders to require extra documentation to be provided by borrowers as well. This documentation might include additional asset statements from bank, retirement and brokerage accounts; records relating to any divorces, bankruptcies and foreclosures; and expanded details surrounding your income and expenses, including W-2s, tax returns, and 1099s.

Apply To Your Chosen Lenders

No two financial providers, be they banks, credit unions, online mortgage lenders, etc. extend mortgage loans under the exact same terms and conditions. Noting this, you’ll want to do extensive research upfront to compare down payment amounts, credit score and history requirements, interest rates, term lengths, closing costs and other factors when comparing competing offers. Note that to secure the best rates and obtain a mortgage loan, you’ll need to provide certain documents and identification (e.g., social security number, tax returns, W-2 forms, etc.) establishing your identity, credit history and income.

Prepare Your Down Payments

Down payments (monies paid upfront to secure a loan) help provide lenders with a level of risk mitigation and insurance against debts going unpaid. In other words, these initial investments on the part of buyers serve as a form of good faith and are commonly utilized to help secure mortgage loan opportunities. (Although it’s also possible to secure select loans under no down payment options.) In any event, saving up for one down payment can be demanding – saving up for two (which lenders may require to be 20% – 30% or more of the total loan amount) can be an even more challenging task. Whether it means eating out less often or going to movies and concerts less frequently, potential two-home buyers might expect to do some belt-tightening.

Arrange The Closing Dates

Closing dates are specific times at which ownership rights to properties trade hands. It’s important to set these deadlines in real estate contracts and account for how closing costs (fees paid to facilitate these transactions) will be paid for. This may mean coming out of pocket for these expenses, financing them as part of your loan or receiving credits from home sellers.