When my fiance and I started planning our future together, one thing we both agreed on was to sell his current house and buy a house together. While his house is great, we both agree it’s time to move to a better neighborhood and into a house with a pool (almost a must when you live in Phoenix!)
As we began to look more seriously into the home-buying process, we started to consider the possibility of one of us buying the house without the other. While many might think it strange to get a mortgage without their spouse, sometimes it can make sense. Read on for more reasons why some people get a mortgage without their spouse.
One of the biggest reasons couples choose to get a mortgage without their spouse is when one spouse suffers from credit issues, like a low credit score, excessive debt, or even a stolen identity. Any one of these factors can derail your chances from getting a good rate, and some couples choose to avoid the hassle by only having one spouse apply for a mortgage.
A low credit score can also hinder couples from getting a good mortgage rate, as many lenders look at the lowest credit score between the two of you. If your spouse has poor or no credit, it may make sense to leave them off the mortgage.
If, on the other hand, your spouse has a high income and can prove steady employment for the past two years, yet still has a low credit score, consider including them on the mortgage. Steady employment and good income can play a big factor in your rate, so don’t discount your spouse until you see the full picture.
Another reason you may want to leave your spouse off the mortgage? Excessive debt! Unfortunately, many Millennials graduating from college (and beyond) have some form of debt, and a small number have excessive amounts of debt.
It’s great if your spouse went to school to become a doctor and recently started making a lot of money, but it’s not so great if s/he has $250,000 in debt. Until you’re able to pay off some of that debt and prove high income over a period of years, you may want to leave the doctor-spouse off and apply for a mortgage (unless you, too, have a lot of debt).
Low or Inconsistent Income
Another factor to consider before applying for a mortgage with your spouse is low or inconsistent income. Particularly if your spouse gets paid sporadically, you may want to consider leaving your spouse off your mortgage.
Freelancers, temps, and even entrepreneurs are all unfortunately affected by this. Even if you’re a successful freelancer with a steady income stream, a mortgage lender will see “inconsistent income” as a red flag, and penalize you for this. Unfortunately, since you can’t “prove” your income is steady, as you can from a public or private employer in the form of pay stubs, you’re seen as more of a risk than someone with a “traditional” job.
A low income will equally impede your ability to get a good rate on your mortgage, although if you’re income is steady and you don’t carry much debt, you’ll likely be looked upon more favorably than someone with inconsistent income.
If you or your spouse fit this category, consider having the spouse with the “stable” income and job apply for a mortgage instead of the lower income or freelancer spouse. You’ll certainly have fewer hassles in getting your mortgage approved, and you may qualify for a better rate.
Things to Keep in Mind if You Apply for a Mortgage Without Your Spouse
If you’re considering applying for a mortgage without your spouse, there are a few things to be aware of:
- Your mortgage company may still look into your spouse’s debt: if you’re trying to avoid acknowledging your spouse’s debt by applying for a mortgage without your spouse, you may be in for a surprise. If you live in a community property state, or are applying for an FHA or VA loan, you and your spouse’s debt will be taken into consideration when purchasing a home – even if you’re the only one applying for a mortgage.
- Your mortgage company likely won’t count your spouse’s income: While your mortgage company may count your spouse’s debt against you when applying for a loan, they won’t typically count your spouse’s income in your favor. If your spouse makes any amount of money, but you apply for a mortgage without your spouse, their income will not count in your favor. Keep this in mind if your spouse has high debt but does expect to contribute to mortgage payments.
- You both can still own the home: Some people think that if you’re not on the mortgage loan, you don’t own the house. Even if you get a mortgage without your spouse, if you put them on the title of the house with you, you both own it. This means if one of you were to pass away, for instance, the other person on the title would still own the house without having to go through probate. While your spouse will not build their credit score if they’re not on the mortgage, they will still have half-ownership of the house if their name is on the title.
Consider too that if only one of you is applying for a mortgage, you’ll likely qualify for a smaller loan amount – meaning a (potentially) smaller house or limited housing options. If you’re hoping to qualify for $200,000 but only qualify for $150,000, based on one income, you may want to consider including your spouse if you’re trying to qualify for a larger loan. Just make sure you can make your monthly payments!
In the end, my fiance and I have decided to apply for a mortgage together. While I have a lot of student loan debt, I make more money. My fiance has no debt and a smaller salary – if you could combine the best parts about us, we’d be a stellar candidate! Alas, we both have our pros and cons, so it works out best for us to combine our powers to get the best rate on our future mortgage.
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However, for some people, applying for a mortgage without your spouse could be a good idea. Your goal is to get the best rate possible, so your monthly mortgage payments are lower, and sometimes not including a spouse with a poor credit history or inconsistent income is a good idea.
If you’re not sure applying for a mortgage without your spouse is a good idea, your real estate agent or lender can work with you to run numbers and see what makes the most financial sense for you and your family. Do you have any experience purchasing a house, and did you buy it with a spouse or by yourself? How did the process go?
It is definitely worth weighing in on the subject. A couple of things that drive your overall effects against paying on your mortgage are the Terms and how soon you actually pay it off. Going with a 15 year mortgage and paying it off in 3-5 years will have a 10x factor in your mortgage cost over any increase in your mortgage rate from the lender.
The ability to acquire enough mortgage funding for the home you choose to buy is another factor that will tie to the applicant or applicants for the mortgage. Another note I would include is that if you can’t cover the mortgage payment on the salary from 1 spouse you probably should look at a different house. (there are special cases again where there is an excessive income from a single spouse and no income from the other.. ) But again I propose is this a good idea?? What if something happens and the breadwinner has to take leave from work or is let go? Then NO ONE is paying the mortgage.
Weigh your options. I would certainly explore the option of who applies for the mortgage if it is going to be 1 person rather than the couple in cases where you are unable to simply pay cash for the home.
Those are really good points, Tim. While everyone hopes for the best, people should have some contingencies in place if the one spouse loses his/her job. Does the other spouse make enough to cover the mortgage? Does the couple have enough savings to cover them for a few months until one of the spouses can find a job? Thanks for the perspective!
Michael @ Financially Alert says
My spouse and I have done both. In fact, we’ve done it in reverse order in some sense because we jointly financed our first home before we were married. It was necessary to combine our incomes in order to qualify for the loan amount we needed.
As we began to earn more income individually, we purchased some investment homes under my own name in order to keep future property financing options open. (Typically it will get a lot harder to purchase more homes once you get past 4 properties.)
Even though some of the rental properties are financed by us individually, we still own the homes together via our family trust.
That is so cool, Michael! It sounds like you two have planned really well. I’m really excited about investment homes, too. Can’t wait until we can buy some investment homes ourselves! Thanks for the tip on keeping that in one name 🙂