- Refinancing is the only way to add a person to a mortgage.
- You may not want to add a person to a mortgage for three reasons.
Will adding my name to my husband's mortgage help my credit score?
Will adding my name to a mortgage help my credit score?
Having a mortgage in good standing appear on your credit report will probably increase your credit score. You may not want to do so for reasons I will get to later, but first let us talk about the steps needed to "get your name on the mortgage."
Mortgage and Mortgage Refinance
A mortgage is a contract between the creditor (the bank) and the debtor (the homeowner). Home loans in approximately half of the US are actually "deeds of trust," and the other half are mortgages. There are important legal distinctions between a mortgage and a deed of trust that are outside of the scope of your question. For the sake of this high-level discussion we can consider deeds of trust and mortgages identical, and for the sake of simplicity we will refer to both as a "mortgage."
Because a mortgage is a legal contract between the debtor and the creditor, neither party can change the terms or conditions of the loan without the other's permission. For example, if the mortgage is a 30-year, fixed-rate loan at 6%, the creditor cannot arbitrarily and unilaterally reset the interest rate at 10% and require the debtor to repay the loan in 20 years. Similarly, the debtor cannot decide to stop making the monthly payment and not expect foreclosure and eviction from the property.
If a mortgage contract is between Spouse A and a bank, Spouse B cannot just be added to the contract, as simple as that may sound. Mortgages are not designed for easy addition or subtraction of parties. Therefore, to add (or subtract) a debtor from a mortgage the customary means for doing so is to refinance the loan. A mortgage refinance creates a whole new contract, and may include new terms such as changed debtors, a different interest rate, a new creditor, and a different pay-off date.
Refinancing the mortgage involves a qualification process. One part of the qualification process requires both spouses to have good credit scores. If your credit is not in good standing you may run into difficulty qualifying. To learn more about what it takes to refinance your home mortgage please read Home Refinance 101.
If you intend to refinance the mortgage you should consider what type of loan you will refinance into. You should be aware of the interest rate, whether the interest rate is fixed or adjustable, the length of the loan, and the costs of refinancing the loan. It may not be worth refinancing the mortgage to put your name on the loan if it means you will have a higher interest rate, an extension in the time it takes to pay off the loan, or have to pay larger monthly payments.
Before you decide if refinancing is right for you, get a no-cost mortgage refinance quote from pre-screened lenders, at the Bills.com refinance savings center.
Reasons Not to Refinance to Increase a Credit Score
You mentioned adding a spouse to a mortgage as a means to boost that spouse's credit score. In my opinion, that is a poor reason for refinancing.
First, there are other, cheaper ways to boost a credit score, including piggybacking on credit cards as an authorized user, using secured credit cards, and removing incorrect derogatory items on a credit report. See FICO Score Calculation to learn five ways to boost your credit score.
The second reason for not adding a spouse to a mortgage is that it removes flexibility when handling potential financial setbacks. As you might imagine, I receive many messages from readers, and a fair number deal with issues surrounding mortgages. Many families today face foreclosure. If both spouses are on the mortgage, foreclosure damages both debtors’ credit scores, and the options are limited for homeowners in this situation.
Contrast that situation with a married couple where only one spouse is on the mortgage. In a one-spouse mortgage and foreclosure, that spouse can take the hit on his or her credit report. The mortgaged spouse faces the deficiency balance and possible bankruptcy. The other spouse can be a "credit score life boat," and when the family’s financial storm subsides that spouse is in a good position to apply for new loans.
The third and final reason to not put both spouses on the mortgage is the potential for divorce. Based on my experience and in my opinion, divorces are much simpler and cheaper where only one party is on a mortgage. Usually in a divorce, one spouse will want to keep the house in the division of assets process. If one spouse is on the mortgage there is a 50-50 chance it will be the one who wants the house. If both names are on the mortgage, there is 100% chance that the spouse wanting the house will need to refinance.
I realize that divorce and financial calamity may not be in your long-term plans, but both happen and having both spouses on a mortgage adds potential complication in your situation for a very small gain that can be found much more easily and for less cost using other tactics.
I hope this information helps you Find, Save, and Learn
Best,
Bill
Your husband will not be able to join his parent's current mortgage, nor transfer the mortgage to his name, without doing a refinance. If your goal is to remain in the house, then continue to make the mortgage payments on time. Speak to a lawyer about drawing up legal documents, such as a quitclaim deed, which would clarify your husband's interests in the property. Naturally those would be subject to the current mortgage.
You mention that your husband's parents are moving and since they can not sell the property, will be foreclosing on it. Foreclosure is instigated by the lender in the case of default. I recommend that your husband clarify his parents' intent before investing sums of money into the property. However, if you continue to make the payments, then there should be no danger of foreclosure.
It is not clear from what you wrote whether the home is worth less than what is owed, but I am assuming it is, if his parents are considering allowing a foreclosure instead of looking to sell the home. If it is indeed underwater, then you and your husband have to consider whether it would be a home you would want to 'buy' for the amount his parents owe.
Lastly, his parents need to think about how having the mortgage still show as an open account on their credit report will affect their housing choices down the road.