Content of the material
- 1. What are the laws for unmarried couples?
- So what does the change mean?
- 6. What if were planning to get married eventually?
- What if one spouse has high income but bad credit?
- Geoff Southworth
- Related Resources
- How Much House Can I Afford? How To Assess Your Finances And Calculate What To Spend
- What Does A Title Company Do?
- What Is Chain Of Title And Why Is It Important?
- Draw Up an Agreement
- Can both spouses be on the mortgage but only one on the title?
- FAQs For Applying For A Mortgage Without Your Spouse
- Can I Keep My Spouse’s Name Off The Title?
- Can You Have Only One Spouse On The Mortgage But Both On The Title?
- Can I Add My Spouse’s Name To The Title At A Later Time?
- Can I Keep My Spouse’s Name Off The Mortgage?
- Your Credit Scores
- Your Spouse’s Bank Accounts
- What is a cohabitation agreement?
- What is typically included in a cohabitation agreement?
- What happens if only one spouse is on the title and they pass away?
1. What are the laws for unmarried couples?
In a select few states, your decision to live together as partners could classify your arrangement as a common law marriage. However, laws in most states treat unmarried couples like individuals when it comes to assets like real estate. So, it’s up to the couple to write their own rules that dictate how their property is to be handled in the event of separation or death.
So what does the change mean?
Primarily, the change to using an average median score for all borrowers means that there’s likely no longer a mortgage-qualifying benefit from leaving your spouse off your mortgage, but there may still be a mortgage pricing benefit for doing so.
In the above example, the 656 created by using the average median score method means that you and your spouse can now qualify for a loan that Fannie Mae will buy. However, while you are now eligible (with an average median score of 656) where you wouldn’t have been before (with a lowest median borrower score of 619), the loan’s pricing will be based on your spouse’s lowest median score (619). This means that your loan costs will be considerably higher than they would be if just the single, higher score borrower (693) was being used.
In this example, the difference can mean as much as 1.75% of the loan amount in additional costs, or, if added into the interest rate (fairly common) as much as a half-percentage point increase in the loan’s interest rate… and there will be increased costs for Private Mortgage Insurance, too, if the downpayment is less than 20%.
So there can still be a cost benefit to leaving your spouse off of the mortgage application.
6. What if were planning to get married eventually?
It can be hard to talk about breakups and death in the midst of a landmark event in your lives: buying a home together. Perhaps you are planning on officially tying the knot down the road, so you wonder if you need to worry about any potential challenges. Even with an eventual marriage on the horizon, creating a legally binding document that outlines both of your wishes for your property is still a smart move.
If you do decide to get married, you will want to revisit all of the paperwork. For example, if only one of you is on the deed, you will want to add your spouse’s name to the deed. This can be done by filing a quitclaim deed.
You’ll also want to consult with a tax professional to ensure you’re maximizing the mortgage interest deduction. As an unmarried couple buying a house together, taking advantage of that deduction is a bit more challenging. When you decide to make it official, you’ll be able to enjoy the benefit of lowering your tax bill.
Dealing with questions about your mortgage is only part of successfully managing your finances. Here’s how to talk about your financial values and priorities with your significant other.
What if one spouse has high income but bad credit?
What if one spouse had great credit but can’t afford the home on their income alone — and the other spouse has good income but poor credit?
In this case, a good solution could be the HomeReady loan from Fannie Mae.
This mortgage program allows you to count extra household income toward your mortgage without adding the other person as a full co-borrower on the application.
That means the spouse with good credit could apply for the home loan on their own and supplement their income with a portion of their partner’s income to boost their borrowing power. Since the low-credit spouse is not on the application, their poor credit score would not affect the loan eligibility or interest rate.
The HomeReady loan requires a minimum FICO score of 620 and a 3% minimum down payment.
In addition, the couple must prove they’ve been living together for at least 12 months prior to the application in order for the non-applicant’s income to be counted toward the mortgage.
Geoff is the creator of Real Estate Info Guide, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Through his experience as the manager of a debt-free, private real estate equity fund, as a business owner, and as a Registered Nurse in Emergency and Trauma care Geoff has developed a unique “people first, business second” approach to real estate.
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How Much House Can I Afford? How To Assess Your Finances And Calculate What To Spend Home Buying – 10-minute read Miranda Crace – May 23, 2022 Home buyers often wonder how much house they can afford. Learn more and use our home affordability calculator here. Read More
What Does A Title Company Do? Mortgage Basics – 5-minute read Victoria Araj – June 17, 2022 Wondering what role a title company plays in the home buying process? Learn how they are involved in closings, clearing titles and how to choose the best one. Read More
What Is Chain Of Title And Why Is It Important? Mortgage Basics – 4-minute read Carey Chesney – May 31, 2022 The chain of title refers to the complete unbroken ownership of a property. It determines if you own your property should another claim to ownership arise. Read More
Draw Up an Agreement
Once you’ve determined how you will title the home, you should put everything about your purchase into writing. This is sometimes called a cohabitation agreement or a “no-nup” (as opposed to a prenup).
Your agreement should outline who’s covering which expenses (taxes, insurance, mortgage payments, utilities, etc.) during your tenancy, as well as what will occur in a variety of unforeseen circumstances, including a death, breakup or loss of income. Additionally, if one person is funding the down payment, they might want to include a schedule for repayment from the other party.
Some questions your agreement should address: What happens if one of you loses your job? What if you break up and one or both of you want to remain in the house? Can one party buy the other out, and if yes, how long do they have to do so? Who will get the furniture and other items within the home?
If you want the agreement to stand up in court, it might be wise to have a real estate attorney draft or review it. No matter what, it’s better to run through these scenarios now, when you’re both feeling conciliatory and generous—because if you can’t agree later, you’ll have to let a court decide for you, which could result in a mountain of legal fees.
Can both spouses be on the mortgage but only one on the title?
There aren’t too many times when you’d want to do this, because you’re on the hook for the loan without the protection of any ownership interest. But there are instances in which it would be appropriate.
For instance, if you needed the property in just your name for estate-planning purposes, but could not qualify for a mortgage on your own, your spouse might co-sign on the mortgage for you. Or you could both be co-borrowers, because legally, only one mortgage borrower has to be on title to the property.
However, many lenders prefer that all borrowers also take title. That’s because technically, a borrower not on title is not a borrower — just a guarantor.
Guarantors are not legally responsible for making monthly payments. They are liable only for loan balances if the primary borrower defaults. Lenders have to take an extra step and sue the guarantor if the borrower defaults, and they don’t like this.
FAQs For Applying For A Mortgage Without Your Spouse
As you can see, there’s a lot to think about when buying property without your spouse, and you may still have questions about some things. The answers to most of them are below.
Can I Keep My Spouse’s Name Off The Title?
If you live in a common-law state, then you have the freedom to leave your spouse’s name off of the house’s 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 spouse’s 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.
Can You Have Only One Spouse On The Mortgage But Both On The Title?
Yes, having both names on the house’s title won’t affect your mortgage or who is responsible for paying it. Whoever’s name is on the mortgage will be solely responsible for the loan. To learn how to add a spouse’s name to the title after getting your mortgage, continue reading below.
Can I Add My Spouse’s Name To The Title At A Later Time?
If you leave your spouse’s name off the title but want to put it on at a later point, you can do so using a quitclaim deed. A quitclaim deed is used to transfer property between individuals, and is typically used to pass ownership to family members, add a spouse to the title or even remove them from it after a divorce.
Can I Keep My Spouse’s Name Off The Mortgage?
Whether you live in a community property or common-law state, you have the option to leave your spouse off the mortgage. Let’s take a look at some reasons it might make sense to apply for the mortgage alone.
Your Credit Scores
Lenders want to make sure they’re lending to people who can repay what they borrow. When you apply for a home loan with your spouse, lenders look at the lowest credit score between the two of you; being married doesn’t mean they’ll average the scores.
If your spouse’s credit score is low, it could cause a few problems. First, it could prevent you from getting the loan at all. Most lenders look for scores of at least 580, so a credit score below that could keep you from qualifying.
Second, your spouse’s low credit score could prevent you from getting the best interest rate. The higher the credit score, the more likely you are to get a better interest rate. If your spouse’s credit score is significantly lower than yours, you may want to consider leaving your spouse off the loan to make sure you can get the best loan terms possible.
When you fill out a mortgage application, you’ll be asked to prove your source of income. In most cases, this means providing things like pay stubs and W-2s. If your spouse is newly self-employed or hasn’t had a stable source of income for the last two years, they might have a difficult time qualifying for a loan.
If your spouse can’t prove income, there’s not much benefit to having them on the loan. If they lack provable income but have debt, they may throw off your debt-to-income ratio, which could keep you from qualifying.
Your Spouse’s Bank Accounts
When you apply for a mortgage, you need to show that you have enough funds to cover things like your down payment and closing costs. If you apply for the loan without your spouse, you won’t be able to use assets that are in your spouse’s name only to apply for the loan.
What is a cohabitation agreement?
A cohabitation agreement is a contract between two parties that live together but aren’t married. The goal of this kind of agreement is to map out a legal plan for any issues that may come up. With a good cohabitation agreement in place, everyone knows exactly where they stand in terms of financial and legal rights.
What is typically included in a cohabitation agreement?
A cohabitation agreement often includes details about property division, inheritance, and other estate planning issues.
As you build this document, it should also consider the financial expectations for each party. For example, it can include which household expenses will be covered by who.
Of course, it should outline what would happen in the event of a breakup.
Finally, if buying a home together the cohabitation agreement should consider the type of ownership each partner has. And if you’ve divided up the home’s equity, make sure it is clearly documented who owns which share of the property.
In many cases, it is worth enlisting the services of a real estate attorney to map out this document.
What happens if only one spouse is on the title and they pass away?
The laws here can get very complex depending on where you live, when the house was purchased, whether your spouse had a will or not, whether you live in the home or not, and more. If this might happen to you, it's a good idea to know how estate planning for property works so you can make sure you're protected.