If you are married and want to buy a house with your spouse, chances are you will apply jointly for a mortgage. When you apply for a split loan, lenders consider both of your incomes so you may be eligible to borrow a larger amount of money. You will also be legally responsible for paying off the debt, so it will be a shared financial obligation that you can work on together.
But while it’s often a good idea to get a home loan with your spouse, it’s not necessarily the right choice in all situations. In fact, there are a few different circumstances in which it may be better to apply for a loan on your own and not name your spouse as a co-borrower when applying for the loan. Here are two.
1. If your spouse has bad credit
Your credit score is one of the most important factors that determines whether you will be able to qualify for a home loan and whether you will get a competitive rate from lenders. If you have great credit but your spouse has a low score or no score, you may want to apply for a loan on your own. That way, your spouse’s low score won’t send red flags that might make it harder to get the best possible rate.
2. If your spouse has a lot of debt
If your spouse has a lot of debt, it can also affect your ability to get loan approval. This is because lenders take into account your debt ratio. This means that they look at your total debt, compared to your total income, to determine how much to lend and what rate to offer you.
Ideally, your debt ratio will be 36% or less to obtain the most competitive rates. Including everything debt, including your new monthly housing payment after getting your mortgage. Unfortunately, if your spouse owes a lot of money, it could result in a higher ratio that affects your ability to borrow, especially if they have low income or no income at all.
You’ll need to consider your partner’s income, relative to their debt, to decide whether it makes sense not to include them as a co-borrower. If they have large loan repayments but are making a lot of money, it may still be beneficial to include them – but look at your debt-to-equity ratio both independently and together when deciding what’s likely to drive to your best chance of loan approval.
Other Considerations When Getting a Mortgage Without Your Spouse
If you’re getting a mortgage without your spouse, you’ll also have to consider other complex financial issues it may raise. For example, would you want to name your spouse as co-owner of the property even though he is not a co-borrower on the loan? And you’ll also need to consider what the rules would be if you got divorced, as each spouse’s rights and obligations may be affected by whether or not you live in a community property state.
Talking to a lawyer or financial adviser could be beneficial as this is an important decision with long-term consequences for your finances. But, in the end, sometimes it makes sense to get a mortgage on your own, even if you’re married – you just need to make sure you think about the decision carefully before you act.
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