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    Real Estate
    Monday, January 30, 2023

    Applying for a mortgage without your spouse

    For many newly married couples, buying a home is a natural next step. They'll be interested in finding a place to raise a family, or at least a residence with enough space for all the new kitchen appliances they got as wedding gifts.

    Couples looking for a home treat the search as a team effort. They'll each have an idea of the features they'd like to see in the property and neighborhood, and will discuss the pros and cons of each listing. So it seems like a given that both partners will team up when it comes to getting a mortgage.

    Unfortunately, some couples might find that they will get a less advantageous loan if both of them are on the application. In these circumstances, it might be better for just one partner to be named on the deed.

    One of the key problems with making a joint application for a mortgage arises if the partners have considerably different credit scores. The lender will always assess risk based on the lower score and set the loan's terms accordingly. Even if one spouse has an excellent score, they will get higher interest rates or other less advantageous terms if their spouse's credit is weaker.

    Spouses may be uncomfortable with the idea of leaving one of their names out of the mortgage process, but doing so can result in considerable savings. Kenneth R. Harney, writing for the Washington Post in 2016, said a Federal Reserve analysis of almost 604,000 borrowers who made a joint mortgage application between 2003 and 2015 determined that nearly one in 10 could have lowered their interest rate by at least one-eighth of a percentage point.

    This may sound like a minuscule amount of savings, but it adds up significantly over time. Limiting the application to the spouse with a higher credit score can result in a lower interest rate that saves you thousands of dollars each year.

    A spouse may be interested in making a solo application for other reasons as well. Lisa Kaplan Gordon, writing for the National Association of Realtors, says a spouse may want to limit the application to his or her name if the purchase will be made using funds they acquired before the marriage. Couples don't want to think about the possibility that they might split up, but this action gives a spouse a more solid claim to the property if the relationship deteriorates.

    One spouse may have a considerable amount of student loans or other debts, and putting their name on the deed could make the home more vulnerable to creditors if they default on their payments. Limiting the application to one person helps protect this asset.

    In some cases, a spouse's income information may not be sufficient enough to meet the requirements for a loan. Christine Brackel, writing for the retail mortgage lender Quicken Loans, says lenders will typically ask for at least two years of financial information such as W-2s, bank statements, and tax returns. If one spouse has not been employed for this long or has recently started their own business, it may make more sense to keep their name off the loan.

    Excluding a spouse from a mortgage application can have its downsides as well. The Consumer Financial Protection Bureau says borrowers can usually only qualify for a mortgage when its monthly payments, combined with any other regular debt payments, account for 43 percent or less of their monthly income. Dan Rafter, writing for the mortgage resource HSH.com, says lenders often restrict this ratio even further by trying to limit the debt-to-income ratio to 36 percent or less.

    This means that a single applicant may qualify for a much smaller mortgage than anticipated, especially if the couple is planning to contribute both of their incomes toward monthly mortgage payments. Brackel says this consideration can sometimes take precedence over disparate credit scores, with both spouses making the application and accepting a higher interest rate in order to show that they can afford a higher monthly payment on a mortgage.

    In certain residences, leaving someone off the deed can cause logistical headaches. Gordon says some condominium managers or homeowners associations will only speak with people whose name is on the deed. This means the one spouse will have to be responsible for any communications with these entities.

    Leaving a spouse off a deed can also hinder their ability to improve their credit. A joint application may result in a higher interest rate, but will also boost the credit of the spouse with the lower score as they contribute toward regular payments on the home.

    A single application may come with extra paperwork as well. The spouse who is not on the application may have to sign a quitclaim deed to consent to the arrangement. Conversely, Rafter says the applicant should be able to add their spouse's name to the deed even if they aren't included on the mortgage application.

    Consult with a lender or mortgage adviser before deciding whether to leave a spouse off a mortgage application. This step can sometimes be advantageous, but it might also be necessary to accept a higher interest rate in order to qualify for the mortgage you want.

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