Community Property States Vs Common Law States
States generally operate as either common law or community property states. In common law states, which is most states, ownership of a property belongs to whomever bought it. So if one spouse buys a house under their own name, they completely own that house. Applying alone during the mortgage process will also mean the lender only considers the applying spouseâs financial situation.
In the dozen states that have community property laws, any property purchased by a married couple is equally owned by the spouses. Importantly, even if only one spouse is applying for a mortgage, community property law can allow a lender to consider the financials of both spouses – incomes, debts, credit scores, etc. -during mortgage underwriting. Both spouses will also ultimately co-own the property, so having one spouse try to buy or claim sole ownership of a house may not be possible.
Community property laws donât affect property purchased by two individuals before marriage. A house purchased before marriage will still belong to the person who purchased it. Speak with a lawyer if you want to buy or own property apart from your spouse or prevent a spouse from getting your property after you die.
Does A Spouse Need To Be A Co
A spouse does not need to be listed as the co-borrower on a home equity loan. Still, its important to note that, even though a spouse neednt co-sign, they still may need to consent to the loan in writing.
Generally speaking, a lender cannot require a spouse to co-sign or act as a co-borrower for a mortgage loan if the other spouse is able to qualify based on their own creditworthiness. However, the spouse who is not listed on the loan could be required to sign documentation to make the property thats used to secure the loan available to the lender should the borrower default.
There is a simple reason for this: The lender wants reassurance that should it be forced to foreclose on the home for default, there would be no obstacles preventing it from assuming ownership of the home. Thus, your spouse might be asked to sign a document that allows the lender to create a valid lien on the home or pass clear title to the lender.
Spouses who act as co-borrowers for a home equity loan are still responsible for paying the debt if their spouse passes away.
Protecting A Couple’s Credit
You can also leave one persons name off the mortgage to avoid potential damage to both credit scores.
Even if you have every intention of making your mortgage payment and fulfilling your obligation, unexpected events might make it difficult to afford your mortgage in the future.
This can include a job loss, an injury, or illness.
If you default on your payments and both of your names appear on the loan, both of your credit scores suffer.
But if only one persons name appears on the mortgage, this can potentially protect the other spouses credit.
And with one person maintaining a clean credit file, it might be easier to apply for future loans.
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My Spouse Declared Bankruptcy
Financial issues can plague a family for years. When the husband has a gambling problem, the wife often pays for it. Wife with a shopping addiction? The husband’s credit will suffer if she can’t pay for it. Couples who work together on their portfolio enjoy success together. But they can also suffer together when one fails. This can affect your decision about getting a mortgage loan to buy your dream home. But all is not lost. A home buyer had this question recently, and we decided to explore it a bit.
My Spouse Has Bad Credit Will We Get A Mortgage
There are plenty of good reasons to buy a home these days. If you’re still working remotely, you may have a more flexible job schedule, which will make it easier to scope out homes and deal with your mortgage application. Also, mortgage rates are very competitive, so it pays to take advantage and lock in a home loan .
But what if you’re applying for a mortgage jointly with a spouse, and their credit score could use some work? Will you qualify for a mortgage if your is strong, but your spouse’s isn’t?
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When Your Spouse’s Credit Score Needs Work
You might assume that if your credit is great, but your spouse’s isn’t, mortgage lenders will just average your two scores and go with that number. But that’s not really how it works. Your strong credit could help compensate for a spouse’s poor credit to some degree. But ultimately, lenders will fixate on the lower of the two scores.
Say your credit score is a 790, which is excellent, while your spouse’s score is not as strong at a 620. A 620 is usually the minimum credit score required for a mortgage, so in this scenario, you might get approved for a home loan without the most competitive interest rate on it.
On the other hand, if your score is a 790 but your spouse has a 540, that low score could potentially ruin your chances of getting approved for a mortgage, despite your great credit.
Reasons To Put Both Names On The Title
Many married couples choose to own their homes jointly and have the deed reflect both spouse’s ownership. Reasons you may want to put a house under both of your names include:â
- To more easily split responsibilities: Having two people who equally own a house can make ownership easier because either spouse can sign documents, or deal with homeowners associations and condo boards.â
- To simplify ownership when one spouse dies: When one spouse dies, the other gets full ownership. This setup can prevent the surviving spouse from having to worry about dealing with paper and probate during an otherwise difficult period to transfer the house into their name.
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Disadvantages Of Getting A Single Mortgage When Youre Married
Getting a mortgage in one name when youre married can have disadvantages. The main disadvantage is the number of lenders that youll be able to approach. As weve said, most lenders prefer married applicants to have a joint mortgage. This is especially true if youre buying a family home. Nonetheless, there are other things to consider before you make your decision on what to do.
If youre married but want to apply as a sole applicant, you may have issues with affordability. Now, this may sound strange at first, especially if your partner doesnt have an income or you earn a large salary. The issue here is that lenders may class your partner as financially dependent as they wont be on the mortgage. In doing so, this can affect the amount youre able to borrow.
When lenders make affordability assessments, they wont just assess your income, but also your expenditure and any financial dependants you may have. Having children can usually bring affordability figures down too. This is because the more children and dependents you have, the more expense youll have.
If you apply for a mortgage by yourself and your partner is working, then lenders wont take your partners income into consideration. In comparison, applying for a joint mortgage may allow you to borrow more. This can be important if you fall short of affordability. Nonetheless, if you have a large enough income, this perhaps wont be an issue.
Your Mortgage Company May Look At Your Spouses Debt
When your mortgage company approves you for a loan, they look at your debt-to-income ratio, which is the percentage of your gross income that goes toward debt. Your DTI can have a huge impact on your home loan.
If one spouse has a lot of debt, you might consider leaving them off the mortgage to decrease your DTI ratio. However, if the home is in a community property state and youre getting a FHA or VA loan, both spouses debts will be taken into consideration.
So, what is a community property state? In a community property state, all assets and all debt belong to both spouses. There are currently nine community property states in the U.S.:
If you live in one of these states and youre getting an FHA or VA loan, your mortgage company will look at the debts of both spouses. If you dont live in a community property state, then you live in a common-law state, and have more flexibility with your property ownership.
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Using A Joint Deposit On A Sole Mortgage When Married
If youre using a deposit from a joint savings account, then you will struggle to get a mortgage in one name. Your partner may be able to gift you their part of the deposit but will have to sign a waiver of rights to the property. In reality, this is quite difficult to do.
This isnt really advised, especially on your partners behalf. This is because your partner would be signing their rights to the property away, despite having paid part of a deposit towards it. This could leave your partner in a very difficult position if your relationship changes in the future.
Most lenders also wont approve arrangements like this. Lenders prefer gifted mortgage deposits to come from family or friends that wont be living in the property with you. This is so that theres a clear distinction between the deposit being a gift.
That said, there are a few lenders that may consider a gift from your partner so do make an enquiry if you find yourself in this position. Your application will need to be flawless, so if you approach lenders by yourself you do risk being declined.
Qualifying With One Income
Taking this approach isnt a perfect solution. The lender will not consider the income of your partner or spouse if you apply for the loan on your own.
This could mean qualifying for a lower mortgage amount and buying a less-expensive home.
The strategy works best when the higher-credit spouse also makes the bulk of the income. In the opposite situation, a one-spouse loan application might not work. Still it is worth getting an analysis
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Can I Keep My Spouses Name Off The Title
If you live in a common-law state, then you have the freedom to leave your spouses name off of the houses title. The title is different from the mortgage in that the name on the mortgage shows who is responsible for paying back the loan. The name is on the title dictates who owns the property. Some might consider leaving their spouses name off the house title in order to keep their finances separate, to personally manage their life estate, or to protect their home from lenders if their spouse has a poor credit history.
What Happens If You And Your Spouse Get A Divorce After Purchasing A Home
If your home were purchased during your marriage, the judge would not look to whether or not both of your names are on the mortgage or even on the title to the home. It is presumed that the house is a part of your community estate if purchased during your marriage. There are exceptions to this rule, but those exceptions need to be supported by evidence. Otherwise, the community property presumption would hold, and the house would be subject to division in your divorce.
Supposing that the house you own is community property, a decision will need to be made about what you and your spouse will do with the house. Option one is to sell the house and then split the equity made in the sale. For example, if you sell your home for $200,000 and only owe $50,000 on it, approximately $150,000 in equity would need to be divided between you and your spouse. How that equity is divided up would be determined based on the circumstances of your specific divorce.
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Should You Apply For A Mortgage With Or Without Your Spouse
You and your spouse are ready to buy that dream home.
On the mortgage application, lenders will look at both of your incomes, credit scores, outstanding debt, and more.
One of you may have bad credit and/or too much debt.
For this reason, you have to decide whether its better to apply for the mortgage loan alone, or with your spouse.
Now:
Theres no wrong or right answer.
Instead, it all depends on your situation.
Learn about the benefits and downsides of each approach to find out if you should apply for a mortgage with or without your spouse.
Choosing To Buy Without Your Spouse
Buying a house when one spouse has bad credit isnt the end of the world. The easy way out of dealing with your spouses bad credit is to apply alone. Your lender may suggest you apply alone if you can obtain the loan you need without your spouse. Sometimes, if your spouse has bad credit but a much larger income than you, this could outweigh the bad credit and actually help your application.
Keep in mind that the names on the mortgage show who is responsible for paying back the home loan. Just because one spouse isnt on the mortgage, it doesnt mean they dont own the home. The title of the home can still have both of your names on it. Both names can be on the title without both being on the mortgage. This would mean both share ownership of the home together, but only the spouse listed on the mortgage is legally responsible for making the mortgage payment.
Before taking the step of applying alone, make sure you have considered what your application would look like with and without the others financial support.
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Why Youd Leave Your Spouse Off The Title
There are a few reasons it might make sense to leave your spouse off the title:
- If youre buying the house with money you had before the marriage, keeping your spouse off the title is one way to keep your finances separate.
- Estate planning: If you have sole ownership of the property, you can leave it to whoever you want. This might make sense if you have children from a previous marriage, for example.
- Protecting your assets: Does your spouse have a poor credit history? If your partner has defaulted on loans in the past, leaving them off the title could help you protect your home. This would prevent any previous lenders who have judgments against your spouse from taking the home as collateral.
One Spouse Stays On The Property Both Names Are Still On The Title
When refinancing is not an option, it sometimes happens that one spouse stays on the property , but both spouses names are still on the title. The spouses may share the responsibility of paying the mortgage, or just one spouse pays, or one spouse pays more than the other, depending on their agreement or court order.
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Have An Honest Conversation With Your Spouse
Newlyweds often know a lot about each other, but finances may not have been a topic thoroughly discussed. Before you visit a lender or fall in love with a home, it’s important to understand your financial standing as a couple. Learn these facts before attempting to buy a home.
- If one spouse has a significantly lower credit score, it may make it harder to qualify for a joint mortgage. It’s not uncommon for potential borrowers to not know their credit score until it becomes a factor in the loan approval process. Both spouses should check their credit scores early on so they know where they stand.
- Monthly income. Both incomes will be an important factor in determining how much house you can afford.
- Financial history and current debts. Student loan debt is common among younger couples. The debt-to-income ratio is an important factor in determining how much of a mortgage you can afford.
- Future goals. Both spouses should be on the same page when considering the responsibility of a mortgage. If you plan to move within ten years, are planning a major career change, or plan to live on one income after having children, you need to plan for the impact these decisions will have on your mortgage.
Should You Apply For A Joint Mortgage
Applying for a joint mortgage means that the mortgage and house will be in both your and your spouses names. You will both own the house equally. You will both owe the monthly payments to your mortgage lender.
It also means that whoever reviews your application will need to look at both spouses financial history. If you or your spouse have truly terrible credit, it could still weigh against you.
Just because one spouse has bad credit, it doesnt mean that filing for a joint mortgage isnt an option! You just need to carefully consider why you are applying for a joint mortgage and what you can do to help your application. You can also take the time to improve the low score in question.
However, perhaps you have worked without success to improve the credit score. Or maybe their other financial qualifications such as income dont make a significant impact on your loan application. If this is the case, then applying alone may be the best option.
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Do Both Owners Names Need To Be On A Mortgage
No you can have only one spouse on the mortgage but both on title. Both owners of the home, typically being spouses listed on the deed, do not have to both be listed on the mortgage. Remember that the mortgage does not indicate who the owner of the home is, so not being listed on the mortgage will have no effect on your ownership of the home.
In certain situations, having one spouse on the mortgage and both on the deed is ideal. This is oftentimes the case where one spouse has very poor credit, such that listing that spouse on the mortgage will result in a much higher interest rate than simply listing the other spouse alone. Listing only one spouse on the mortgage may save significant interest over the long term.
There are numerous other reasons to list only one spouse on a mortgage. Common reasons include:
- Income Requirements If including both spouses would cause the couple to fail the income requirements, perhaps because he or she has not had an income in the past few years, that spouse may be best left off the loan application.
- Timing It is oftentimes quicker to approve one spouse on a loan than both when time is of the essence.
- Limiting Credit Score Impact If there is a foreclosure and only one spouse is listed on the mortgage, only his or her credit score will be affected.
- Pending Divorce The spouses are pending divoce and one wishes to buy a home without the other.
