Married couples can choose to buy a house under just one name rather than including both spouses on the mortgage. In fact, in certain circumstances it can actually benefits couples to only put down one name in their application.
Here, Octagon Capital explores the ins and outs of only putting one spouse on the mortgage application, including the benefits, disadvantages and important things to look out for in this process.
Do You Have To Apply for a Mortgage With Your Spouse?
It is not necessary to include both spouses on the mortgage application if married couples are buying a house or refinancing their current homes.
In fact, in some cases it could benefit the couple to only include one spouse on the home loan application. For example, choosing the spouse with the better credit score could make it more likely that the couple will be approved for a mortgage.
Benefits of Having One Spouse on the Mortgage
There are many reasons why a married couple may choose to purchase a home using only one spouse’s details, including the following…
- Avoid credit issues
If one person on a joint application has poor or damaged credit history, it can have a negative impact on the entire mortgage application.
When making a joint application, mortgage lenders create a “merged” credit report using the scores of each applicant; they then use the lowest of the two scores in order to evaluate the application.
This lower score is what determines the offer for the lender meaning that if one spouse has a significantly lower credit score, it could ruin the chances of the couple securing a mortgage.
Low credit score could prevent a couple from qualifying for a loan or could lead to higher interest rates.
Typically, credit scores of lower than 580 will be rejected by the majority of lenders. That means that if one spouse has a score of 580 or lower, the other spouse should consider making the application alone.
- Save money on mortgage interest rates
If one spouse of the couple has exceptional credit, it could benefit both partners in the long run as it could save thousands on your home loan.
Applying alone can significantly reduce the mortgage cost and the interest rates incurred. However, this strategy will rely on the individual not only having a high credit score but a high income as it is true that the borrower must qualify for the loan without the help of their spouse’s income.
- Preserve assets
To take out a secured loan, you will typically need to put up collateral in order to mitigate risk for the lender. In many cases, this could be an asset such as your home. This means if you are unable to pay your mortgage, you risk being vulnerable to asset confiscation.
If you buy a house in just your name, you protect your home from creditors in the case that your spouse has outstanding debts such as student loans or unpaid taxes.
- Simplify estate planning
Having the home in one spouse’s name only means that it simplifies estate planning. This is particularly in the case of second marriages. For example, if you want to leave your house to children from a separate marriage, you can do this more easily without having to deal with the rights of your current spouse.
- Dividing assets during divorce procedures
In the case of divorce, having two names on a mortgage application can be dangerous territory. Buying in one name only will help the buyer maintain control and manage proceedings more easily.
Disadvantages of Buying a House Under One Name
A joint mortgage application may be a good idea for couples in which the spouses have similar credit histories and shared estate planning. In this case, buying a house under one name may not be the best option.
Only one income: If applying for a mortgage using just one name, only one income can be counted on the application. This will significantly reduce the buying power and mean that fewer properties are available.
A joint application, with two incomes, means that a couple can afford a larger monthly mortgage payment and increase the maximum loan amount they can qualify for. This also means that they have access to more expensive homes than simple applicants.
Higher debt-to-income ratio: Leaving a spouse off the mortgage application could potentially lead to a higher debt-to-income ratio.
In general, the higher your income and the lower your debts, the more likely you are to be able to afford a house.
However, if you are choosing to apply as a single applicant and have high debts, it may be more difficult to meet a lender’s debt-to-income ratio requirements. Or, it may be that they qualify but are not able to receive as high a loan value as they wanted.
If You Buy a House Under One Name Can Both Spouses Be on the Deed Title?
Even if you choose to buy a house under one name, you can add your spouse to the home’s title after the loan is finalised and become official “co-owners”. However, the person on the mortgage application will be the sole party responsible for the repayment of the loan.
Listing a spouse as a co-owner on the house title does not signify any legal responsibility for them to assist with the mortgage payments.
