If you are married and planning to take the mortgage with your spouse, you have to analyze both advantages and drawbacks of it. If both of you are on a home loan application, it can cause mortgage problems for you. If once there is a problem with your application, it can lead to further issues and make it difficult for you to apply for a mortgage.
For example, if you have a low credit score, it can be difficult for your spouse to apply for a mortgage as your low credit score can affect your partner’s interest rate. In such cases, it is advisable to leave one spouse off the home loan.
The couple mortgage plan
As a couple applying for a mortgage can be helpful for each other too, as one partner’s good credit score will help the other person’s interest rate.
These days there are a variety of mortgage programs that helps the borrower to earn benefit out of it. Also, there are affordable plans available that charge lower interest rates.
Benefits of the mortgage without your spouse
Mortgage application with no credit issues
In a couple, if one person has poor credit, it can seriously damage the application of the other person. This is because the lenders consider the merged credit of a couple and involve the bad credit.
With a joint score, lenders calculate the lowest of two scores to evaluate the applications. This score that the lenders use is termed a “representative” credit score.
In such cases, it is unfortunate that the lenders do not average out the representative scores. They deal with what is profitable for them. They eliminate the good score of the applicant and deal with the low credit score of the applicant.
Making a deal on a lower credit score will lead to higher interest rates and is expensive for the couple to accept the deal. In case of a low credit score, it will be difficult for you as a couple to qualify for the mortgage.
This is when the role of the high score applicant starts. The higher credit score applicant can apply for the mortgage as an individual and not as a couple.
Save money on mortgage interest
In a couple, if one has passable credit and the other one has exceptional credit, the person with higher credit can apply for the loan on their own as it will attract a lower mortgage rate. This will facilitate to make savings in the long run.
For applying for a mortgage on behalf of your spouse, you should have a considerable income and a higher credit score.
If you apply for a mortgage and somehow fail to repay, your house can be confiscated in this case. Your house works as an asset for you in this case. For example, if your spouse cannot pay back the loan, your home or any other asset is vulnerable to confiscation.
If you buy a house in your name, you can protect your asset from creditors. Note that if your spouse posts your marriage, this protection may not apply.
Also, if you had purchased the house with your sole income, you would want to keep it sole and separate for you.
Simplified estate planning
If it is your second marriage, then it will simplify your estate planning. For example, you can transfer your house to your children from your first marriage and do not need to involve your spouse from your current marriage.
Head off divorce battles
While marrying, you do not think of getting a divorce, but if things do not go in the right direction and they feel shaky to you, you have to get a divorce.
During your divorce, you may not wish to transfer your property to your spouse. Hence, you can control that by buying it in your name only.
Drawbacks of the mortgage without a spouse
If both of you have a comparable credit, you can apply for a mortgage in a joint application. If you leave your high credit spouse, it will lead to your decreased borrowing power.
Less income = less buying power
Leaving your spouse off your mortgage means that they are counted off the application. This can lead to a significant impact on your ability to borrow.
Simply, if you have higher incomes, you have the affordability of larger monthly payments of your mortgage. As a result, if couples apply jointly for a mortgage, their affordability increases, and they can afford more expensive mortgages.
Potentially higher debt-to-income ratio
If you do not include your spouse in your mortgage, there are high chances that it can affect your debt-to-income ratio (DTI).
The debt-to-income ratio determines your affordability. With this ratio, the lenders judge on your leftover money in your mortgage payments budget.
With higher incomes, your debt automatically gets lower and increases your affordability.
If any one of you has high debts and is applying alone for the mortgage, it is unlikely that they will meet the lender’s DTI requirements. Even if they qualify, they will be eligible for a smaller amount.
If you plan to apply for a mortgage with your spouse, you have to understand the pros and cons to make an informed decision. Also, looking at both sides, you can better understand both sides and apply for a mortgage accordingly.