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In most cases, two borrowers are better than one when it comes to getting a mortgage. If you’re buying a home with your spouse, you’ll likely have more income, and that could raise your chances of qualifying for a mortgage. Plus, lenders are often more comfortable lending to two people instead of one.
However, there are situations when it makes more sense for you to apply on your own. If your spouse has significantly lower credit scores, a lot of debt, or just started a new job — you might want to apply for a mortgage without them.
We’ll cover those circumstances and what they will mean for mortgage qualifying in this article about when to apply for a mortgage without your spouse.
Three reasons to apply for a mortgage without your spouse
While your spouse may just not want to be on the mortgage because they don’t want the paperwork hassle or the responsibility, there are other more common reasons it’s wise to get pre-approved for a mortgage without your spouse.
Your spouse has low credit scores
The most common reason to apply on your own is because your scores are higher than your spouse’s. The mortgage qualifying system requires lenders use the lower of the two borrowers’ credit scores to get a mortgage. If your spouse’s scores are below the minimum required for approval under traditional conventional, FHA and VA loan programs, this could be a big issue.
In other cases it may be because you want to get the lowest interest rate possible, and you don’t need your spouse’s income to qualify. The lower your credit score, the higher your interest rate will be. Higher interest rates cost you more every month, and could mean you have to scale back on how much house you can purchase.
Your spouse has a lot of debt
It’s not uncommon for couples to have their own credit before they get married; in many cases the most prominent debt that follows a couple into marriage is student loans. So if your spouse has a lot of student loan debt, regardless of whether it still in deferment or not, it may be best to leave them off the loan if you have enough income to qualify on your own for the mortgage you need.
This is also true of revolving debt and large car loans. Or maybe one of you cosigned on a relative’s car loan, not realizing that the payments would be counted against you once you decided to buy a house. The bottom line is that your combined debt counts against your combined income. If one of you has a lot of debt, but very little income, that’s the person who should be left off the loan application.
Your spouse is newly self-employed
Being an entrepreneur can give you the freedom to do something you love without the constraints of a boss telling you what to do.
However, if you recently opened a business and incurred a lot of expenses that resulted in a first-year loss, it may be best to bow out of the loan application. The loss could actually become a liability if it shows up on your personal tax returns, reducing your qualifying income.
Or if the income is very complex, requiring a lot of explanations from a CPA to understand how the money ultimately flows into your pocket, it may be worthwhile to leave off to avoid unnecessarily complex documentation requirements.
Why your spouse’s debt may be counted against you even if they aren’t on the loan
Even if you leave your spouse off your mortgage application, you may find out that all of their monthly debt is still counting against you. Unfortunately, that may be the case if you live in a community property state, and are applying for a government-backed loan such as an FHA, VA or USDA loan.
How community property states affect mortgage lending
In a community property state, the assets of each spouse are considered assets of the couple. That also means that the debts of the individuals become joint obligations once they are married, as well.
Below is a list of the nine community property states in the U.S.
- New Mexico
Depending on the loan program you select, your spouse’s debt may still end up being counted against you in a community property state.
Loan programs that make it harder to qualify in community property states
The good news is only government-backed loan programs are affected by community property laws. If you are applying for a Fannie Mae or Freddie Mac 30-year fixed conventional loan, you can apply individually even if you are married. You will not have to count your spouse’s debt against your income even in a community property state.
However, government loan programs are another story. We’ll cover how they are affected by community property laws next.
Government-backed loan programs provide a great deal of flexibility when it comes to qualifying for a mortgage. Federal Housing Administration (FHA) loans are insured by the federal government and are a popular first-time homebuyer program, allowing for a 3.5% down payment and credit scores as low as 580 (or even 500 with a 10% down payment). FHA loans also allow debt-to-income ratios to rise above 50% in some cases. Your debt-to-income ratio is a measure of how much total debt you have compared to your total before-tax income.
There is one important caveat if you are applying for an FHA loan to purchase a home in a community property state without your spouse — the lender will still have to pull your spouse’s credit report. If your spouse has debt that is not already referenced on your credit report, the monthly payments will be counted against you. This could affect the amount you qualify for.
If you’re an active duty servicemember or retired military veteran, the Veterans Administration home loan program offers the most flexible qualifying guidelines for any mortgage program offered to current and aspiring homeowners.
If you’re eligible based on your service, you can buy a home with 0% down payment, no minimum credit score and DTI ratios in excess of the limits FHA allows. In fact, the VA doesn’t actually have a maximum DTI, opting instead to use a calculation called residual income that looks at how much money you have left over after taxes, monthly debts and home maintenance expenses.
The only place where they aren’t flexible is when it comes to spousal debt in a community property state. Like the FHA, a spouse’s debt has to be counted against your income, and that could reduce your borrowing power significantly.
The United States Department of Agriculture offers a home loan program for low- to moderate- income borrowers in designated rural areas with low down payment options and much of the flexibility of FHA loans. The DTI maximum is 41% and credit score minimum is 640 — slightly more stringent than the FHA — and they also require that a spouse’s debt be counted to qualify for a loan, even if the spouse is not on the application.
How applying without your spouse may affect your mortgage
There are a few adjustments you may need to make if you have to qualify for a mortgage without your spouse. You should take this into consideration before you go solo on your loan application.
You may qualify for less loan
Even if your spouse makes a lot of money, if they don’t apply on the loan, the income can’t be used to qualify. Be sure you’ve run your qualifying numbers based on the spouse that is going to be on the application.
You may need extra explanations and documents related to your assets
If you have joint banking accounts, your spouse may have to provide an “access letter,” which is basically a letter verifying he or she has access to all of the funds in your joint accounts for the purposes of the loan. If your spouse also deposits large income checks, the lender may require they be documented with copies of the canceled checks and letters of explanation confirming where the deposits came from.
Whether your spouse will be on title to the property
A non-borrowing spouse is allowed to be on the title to your property. You just need to understand that even though they have ownership interest in the property, they have no responsibility for the mortgage unless they apply with you for the loan. That means you have 100% of the responsibility for the mortgage, but receive 50% of the equity in the home in the event is sold.
May have to avoid government loan programs
If you live in a community property state, depending on how much debt your spouse has, you may have to avoid government loan programs. That may put you at a disadvantage because conventional loan programs require a minimum credit score of 620, and a maximum DTI of no more than 50%.
Final thoughts about applying for a mortgage without your spouse
Buying a home is often a huge milestone in a married couple’s life. But if one spouse has to be left out due to low income or poor credit, that may make them feel left out or picked on by the loan process.
The good news is that a non-borrowing spouse can always be added with a refinance loan in the future. A refinance loan pays off an existing mortgage, usually to lower payments, take some cash-out to pay off other debts or to access funds to make home improvements.
As rates and home prices rise and fall, there are inevitably opportunities to take advantage of a refinance, and if the circumstances that kept the non-borrowing spouse off the application have changed, they’ll be able to be added to a joint application for mortgage financing in the future.