The housing market is highly competitive right now. The combination of low interest rates and a year spent at home has made many people eager to buy their first home or upgrade from their current property. Homes are being sold before they even make it to market.
If you want to improve your chances of buying your dream home, you need to be pre-approved for a mortgage. That’s where you can run into a significant problem as a married couple: your spouse may actually make it harder for you to get approved for a mortgage.
If your partner has a poor credit score, they may actually disqualify both of you for getting a loan. When two people apply for a loan together, lenders consider the lower of the two scores. If your partner has struggled with money in the past, this can completely bar you from getting a mortgage.
There’s a loophole, though. You don’t have to apply for a home loan with your partner. Instead, you can apply for a mortgage in your own name, so the lender only considers your financial information. This strategy can help you get a mortgage despite your partner’s poor credit, though it’s not a perfect solution. Here are the benefits and drawbacks of applying for a home loan without your spouse.
Benefits of a Single-Spouse Mortgage
Your home is one of the most important and most expensive purchases you’ll ever make. It’s easy to get so caught up in the idea of the home that you lose sight of how much you can actually afford to spend. Lenders know this, so they vet mortgage applicants heavily before offering any funds. They look for two key factors: a solid credit score and a low debt-to-income ratio.
Leaving your partner off the mortgage will benefit both of you if their financial history is less than stellar. Here’s how.
Fewer Credit Problems
First and foremost, when your partner isn’t on the loan application, their credit score won’t affect the process. The bank essentially looks at your application as if you were single. If your credit score is strong, then you’re immediately more likely to receive consideration from lenders.
The exact score you need to be considered for a mortgage varies depending on the lender. For example, some lenders specializing in high-value homes may choose to decline anyone with a credit score of less than 740. Others may offer conventional mortgages to people with credit scores as low as 620. These less-picky lenders should be avoided if possible.
Lower Interest Rates
Why avoid getting a mortgage from lenders that accept lower credit scores? Simple: the lower your credit score, the higher your interest rate will be. Having your spouse’s low score on your application makes you appear “risky” to lenders. They make up for the risk they’re taking on by charging higher interest rates.
If you apply for a mortgage with your higher credit score, you’ll be eligible for loans from more discerning lenders. They take on less risk in general, so they offer lower interest rates. Working with them can save you tens of thousands of dollars in interest payments over the life of your mortgage.
While you’re married, if your home is only owned in your name, it’s considered separate property. Your partner has no ownership over it. That means that the house is not up for consideration if your spouse is struggling with debt.
This is valuable protection. In community property states like California, debt collectors can take half of all marital property to satisfy one partner’s debts from before marriage. If a home is entirely in your name, then it can’t be seized. Regardless of your spouse’s money problems, you’ll be able to feel secure in your home.
Drawbacks of a Single Spouse Mortgage
Of course, a single spouse mortgage is not the right choice for every couple. There are several drawbacks to this loan structure, especially for couples who earn similar incomes.
Lower Buying Power
Lenders determine the amount of money you can borrow in large part by checking your current income and debts. While your credit score determines if you’ll receive a loan, your income and debt-to-income ratio determine the size of that loan. Having an excellent score may raise your total loan eligibility slightly. Still, it won’t counteract the effects of leaving your spouse’s income off the loan.
If you provide all the income in the relationship, then you might not have a problem. However, if you and your partner earn about the same amount, leaving them off the loan paperwork cuts your buying power in half. This will limit you to smaller homes, or it may prevent you from buying altogether if you live in an expensive housing market.
Potential Divorce Drama
If you and your spouse split down the road, having your family home in the name of one party could cause problems. On one hand, it can help you avoid complicated asset division problems if you and your partner agree about ownership. On the other, if your spouse wants the house and their name isn’t on the deed, the legal proceedings could get complex quickly.
This is particularly true in community property states like California. The homeownership structure should be explicitly outlined in a prenuptial agreement or another contract. Otherwise, both partners are immediately assumed to have split ownership over any property and debts they acquired during the marriage. Even if the mortgage is entirely in your name, you will both share ownership in a divorce without a legally binding contract stating otherwise.
Make Homeownership Part of Your Future
Property is a valuable investment, and your home will have years of warm memories connected to it. It’s worth planning ahead to make sure you get the best deal on your mortgage. For many people, that means applying for a mortgage without including their partner’s information.
If you might benefit from getting a one-spouse mortgage, do your homework. Work with a qualified attorney to develop a legally binding contract about the home’s ownership. It’s better to write a post-nuptial agreement about your home and not need it than the opposite. Reach out to a qualified attorney to discuss your situation so you can buy your home without worrying about the future.