You’d be surprised at how many different situations exist between married couples when it comes to qualifying for a mortgage. Some married couples decide to only have one person on a loan application, while others are required to only have one. Here are a few examples of why and what it means for each spouse.
Why and when would it be smart to only use one spouse on a home loan application?
- Credit scores
Some spouses have drastically different credit scores. Interest rates are determined by using the lowest middle score of any borrower listed on the loan application. If one spouse has a great score and the other an average score … the average score will be used, which will make the rate higher than it otherwise needs to be.
It’s very common for spouses to have their own debts (credit cards, auto loans, student loans … etc.), meaning the account is in their individual name only. If spouses are both listed on the loan application, it would require all debts to be considered against the income of both people. In some situations, all or most of the income belongs to one spouse. So by removing the spouse that either has no income, very little income, or income that can’t be documented, the associated debts are removed from the income-to-debt calculations.
I know it sounds weird, but some loan programs are not available to those that over qualify. Most first-time buyer programs have income ceilings. If a loan application has two applicants that both earn income, the combined income could exceed the maximum allowed by the program. So by removing one spouse, it can allow for buyers to benefit from first-time homebuyer programs.
- Life situations
It’s not uncommon for spouses to have trailing situations, such as prior divorces and/or derogatory credit events like a bankruptcy or foreclosure. Leaving off a spouse that has such items on their credit report avoids documenting the associated underwriting requirements.
Should the spouse that was removed from the application be concerned?
No. Each spouse has an equal amount of ownership in the home, no matter if they are on the loan application or not. Each spouse also has an equal amount of financial responsibility associated with the home. For example, if the spouse that was on the loan passes away, the surviving spouse takes over the obligation to repay the note. If you’re asking if there are ever situations where a spouse buys a house without the other spouse knowing? Yes, but it doesn’t change the fact that the other spouse has equal rights to the home and equal responsibility for the payments.
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268