There’s no rule that says spouses have to put both of their names on a mortgage. It’s perfectly okay for only one spouse to apply for a home loan. In this case, both names can still appear on the deed.
If only one spouse works and the other is a stay-at-home dad or mom, the question of who will apply for the mortgage may not be up for debate. But what if both spouses work and generate income? Is it better to have one or both names on the loan? The answer depends on the situation
Benefits of a Joint Mortgage
Before deciding whether to have both your names on the mortgage, you need to understand the benefits of a joint mortgage. When applying for any type of loan, including a mortgage, qualifying amounts are largely based on a borrower(s) income. In the case of a mortgage loan, the house payment can be no more than 28% to 31% of a borrower’s gross monthly income. This percentage includes principal, taxes, interest, insurance and homeowner association fees.
One of the perks of applying for a mortgage with your spouse is that the lender uses your combined income to determine affordability. If you earn $45,000 a year and your spouse earns $20,000 a year, you’ll qualify based on $65,000 a year. This increases purchasing power, allowing you to buy more house. Getting a joint mortgage may seem like a no-brainer, but there is a sound reason to only have one person’s name on the loan.
How Credit Scores Affect Mortgage Rates and Approvals
Not only will the mortgage lender look at both incomes, the lender also looks at both of your credit scores. There is a misconception that when two people apply for a mortgage the lender uses the average of both credit scores to determine eligibility and the interest rate. This, however, is a myth.
Your credit scores say a lot about your credit habits; and the reality is, a low credit score can disqualify you from getting a mortgage, or result in a higher interest rate. If you and your spouse apply for a mortgage together, the lender pulls both scores, but only uses the lowest score for qualifying purposes. So if you have an 820 credit score and your spouse has a 620 credit score, your mortgage rate will be based on the lowest of the two scores, which means you could end up paying a higher interest rate. What’s worse, if the lowest of the two scores is below the bank’s minimum credit score requirement, your application may be rejected, despite the fact that one person has a high score.
Should You Include Your Spouse on a Mortgage?
Applying for a mortgage together can possibly result in a bigger loan. But if you know your spouse has a poor credit score, you might consider applying for a mortgage in only your name, at which point the lender only uses your income and credit score.
Of course, this may not be an option, especially if your income alone isn’t enough to qualify for a home loan. But if you’re in a position to get a mortgage without the help of your spouse, getting the mortgage in your name only can help you receive the most favorable interest rate, which can save you thousands over the life of the loan.
