Marriage comes with numerous financial implications. It can affect taxes, retirement accounts, insurance premiums and mortgage lending. Couples must consider a variety of things when buying a house, but many don’t think about whether both spouses’ names should be on the mortgage. Below are some things to know about buying a home in one spouse’s name.
When Either Spouse Has Poor Credit
Unfortunately, lenders don’t average spouses’ credit scores or use the highest one; they focus more on the person with the lower score. If a spouse has a score that could prevent them from getting a favorable rate, it may be a good idea to leave them off the mortgage unless their income is needed to qualify for the desired loan amount.
When a Spouse’s Income Doesn’t Meet Standards
To get a mortgage, borrowers need two years’ W2s and tax returns, as well as the last two bank statements. More documentation may be required in some cases, such as for the self-employed, and some people may be able to get by with less proof. However, if either spouse can’t meet the documentation requirements, it may make sense to leave them off the mortgage paperwork.
The Loan Amount May Be Smaller
If a household has two incomes, a mortgage in both spouses’ names typically means a bigger loan amount. However, if one spouse isn’t on the mortgage, his or her income won’t be considered, and the loan amount will be smaller. A notable exception would be a loan that considers all household members’ incomes, regardless of whether they’re on the loan paperwork.
Some Lenders Consider a Spouse’s Debt
When a lender approves a loan, they evaluate the borrower’s debt to income (DTI) ratio, which is the portion of gross income used to pay debt. DTI can have a significant impact on a mortgage, and if either spouse has debt, leaving them off the loan can decrease the ratio. However, in community property states where borrowers seek VA or FHA loans, both spouses’ debts are considered.
Buying a home is an exciting idea, but applying for a mortgage is less so, especially when either spouse has debt. Potential borrowers can visit here for more mortgage tips and information.