Buying a house is one of the biggest decisions you can make in your adult life. There are a variety of reasons why a married couple would buy a home under one name. Maybe one spouse has better credit, or perhaps it’s an investment property; either way, you need to understand the terms.
If you’re a married couple buying a house under one name, know the pros and cons of the decision. You should also know your state’s common law and community property rules. Finally, determine if your spouse will be on the mortgage, the title, or neither.
Table of Contents
- Common-Law vs. Community Property States
- Home Buying Considerations
- The Benefits of One Spouse on the Mortgage
- The Cons of Having One Spouse on the Mortgage
- Related Questions
Common-Law vs. Community Property States
If you’re married, whether you can buy a house without your spouse is determined by the state you live in. You either live in a community property state or a common-law state.
Community Property States
If you live in a community property state, you and your spouse own all assets gained during the marriage. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
It is possible to leave your spouse off the mortgage if you live in a community property state. However, if you apply for an FHA or VA loan, the lender will have to consider your spouse’s debts, too. This could be problematic if your spouse has a lot of debt because it could increase your debt-to-income ratio.
If you’re keeping your spouse off the mortgage for another reason, like a low credit score, it could be beneficial. If you live in a community property state but don’t want your spouse on the title, that won’t be possible. Because of the community property laws, your spouse will own 50% of the home.
The opposite of a community property state is a common-law state. Common law means that you share equal ownership of any property you acquire while married. You can apply for a mortgage without your spouse, and the lender won’t be able to consider their finances.
Common law states also allow you to put your name on the title without your spouse. If the circumstance arose where you and your partner separated, the home would be yours alone.
Home Buying Considerations
There are a few things to consider when you’re about to apply for a home loan. The standard is to opt for a conventional loan, but this is pretty much impossible if you have less-than-stellar credit. However, you can look at a few different options.
Buy a House by Yourself
If your income is high enough and your credit score is good, you can apply for a mortgage without your spouse. This is beneficial if your spouse has a poor credit score.
A bad credit score could lead to higher interest rates and cause you to have a more expensive mortgage. Plus, in many cases, lenders won’t even consider writing you a loan if you have bad credit.
Apply for an FHA Loan
If your spouse’s credit score prevents you from having a conventional loan, you can apply for an FHA loan. An FHA loan does not have specific credit score requirements. However, lenders usually reserve the best rates for borrowers with a credit score of 620 or above.
Repair Your Credit
If you or your spouse have a low credit score, work on repairing it. You can do this by paying your bills on time every month, fixing any credit report errors. Try to eliminate disputed accounts and keep credit accounts open, but use them wisely.
The Benefits of One Spouse on the Mortgage
Married couples buying a home or refinancing their current home do not have to include both spouses on the mortgage. This can sometimes be beneficial based on one spouse’s financial circumstances. There are several reasons a married couple might want to purchase a home in one spouse’s name only.
Avoid Credit Issues
Mortgage issues can arise when one spouse has poor credit on a joint application. Mortgage lenders tend to pull merged credit reports with the history and score of each applicant. Lenders then use the lowest of the two scores or the middle of three scores to evaluate applications.
The term for this process is the “representative” credit score. Unfortunately, lenders don’t average the credit scores of both applicants. Instead, they discard the better applicant’s score and make an offer based on the lower one.
This situation can result in a higher interest rate and can cause issues with qualifying for a loan at all. Credit scores below 580 typically get denied by most lenders. If your spouse has a credit score around that, you should apply for the loan alone.
Save Money on Mortgage Interest
If one spouse has good credit, but the other spouse has excellent credit, the higher-credit spouse should consider applying alone. This can help secure a lower mortgage rate and save you thousands on your home loan in the long term.
The Federal Reserve conducted a study on mortgage costs. 10% of homeowners could have paid at least 0.125% less if the more qualified buyer had applied alone. Another 25% of borrowers could have significantly reduced their loan costs this way.
Preserve Assets If One Spouse Has Debt
Your home is considered an asset that can be liened or confiscated under certain circumstances. Defaulted student loans, unpaid taxes or child support, or unpaid judgments can make your spouse vulnerable to asset confiscation. Buying a house in one name can protect it from creditors.
This also applies if you’re buying the house with money before the marriage. However, if your spouse incurred debt after marriage, the protection may not apply.
Simplify Estate Planning
Having the home in one spouse’s name simplifies estate planning, especially in the case of a second marriage. If you would like to leave your house to your children from a first marriage, it’s easier to do. This is because your spouse won’t have the rights to it.
Prevent Divorce Battles
No one plans on divorcing when they get married. However, if you are putting up most of the money, the process is simplified if the house is bought by you.
The Cons of Having One Spouse on the Mortgage
If both spouses have comparable credit and shared estate planning, it makes sense to use a joint mortgage application. Leaving off a spouse with good credit can only decrease your borrowing power.
The biggest drawback of leaving your spouse off the mortgage is that you can’t count that income on the application. This can impact the amount that you’re able to borrow. More income means that you can afford a larger mortgage payment and increases your maximum loan amount.
Couples that apply for mortgages together can often afford larger and more expensive homes than single applicants.
Higher Debt to Income Ratio
Your debt-to-income (DTI) ratio is affected if you leave your spouse off the mortgage. Debt-to-income is how lenders determine how much house you can afford. DTI is determined by comparing your gross monthly income to your monthly debts.
Monthly debts include student loans, auto loans, and credit card payments. Mortgage lenders then determine how much is leftover in your budget for a mortgage payment. The higher your income and lower your debt, the more house you can afford.
DTI requirements are harder to meet if the person on the application has high debts. They may not qualify for the loan amount they expected.
Little Rights to the Property
If you are not on the mortgage but your spouse is, you can have little rights to the property. Your partner can make big decisions without your consent. These decisions include borrowing against the home’s equity, selling the property, and leaving the property to someone else.
If you are not on the mortgage, you aren’t required to know what happens to the home.
If I leave my spouse’s name off the title, can I add it later?
If you leave your spouse’s name off the title, you can add it later through a quitclaim deed. A quitclaim deed lets you transfer property interest from one person to another. The person transferring the interest is called the grantor, and the recipient is called the grantee.
In addition to adding your spouse to the title, people get quitclaim deeds for various reasons. Removing a spouse after divorce, passing property to another family member, and putting property into a trust are some reasons. The downside is the quitclaim deed doesn’t provide any guarantees for either party about the property or ownership of it.
Can one spouse refinance a mortgage without the other?
If one spouse is on the existing mortgage, they can refinance the mortgage in their name only. If both spouses are on the existing mortgage, the options depend on the refinancing goals.
If both spouses want to remain on a joint mortgage, they both have to apply for a new home loan. It’s not possible to refinance with only one borrower and keep both names on the mortgage.
In situations of divorce, things can be tricky. If one person wants to remove the other person’s name from the mortgage, the person removed must agree. You can’t refinance a joint mortgage without the other borrower’s consent; this is considered mortgage fraud.
The spouse that remains on the mortgage has to qualify for the loan on their own. This means meeting requirements of credit score, employment, income, and debt-to-income ratio. The remaining spouse on the loan will have to pay closing costs, too.