Did you know that you don’t need to use your spouse’s credit when buying a home? Or have them on the mortgage application at all? This is a common misconception that affects home buyers everywhere! Don’t worry, here are a few good reasons not to include your spouse on your mortgage application that affect your chances of approval:
- Collections
- Debt
- Income
- DTI (debt-to-income)
There are 9 out of 50 states that consider everything bought (whether individually or together) as property of the married couple. Depending on the loan program you qualify for, this can affect elements of your mortgage application. This also means that if you fail to make mortgage payments on time, your spouse becomes responsible for those payments even if they’re not on the mortgage title. I’ll go over what the requirements mean and when they are applied during the approval process.
States with Community Property Laws
- Alaska (optional)
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
These states require a credit check for both spouse’s when applying for a home mortgage, whether they’re on the loan or not. However, this is only required for FHA and VA mortgage loan programs (aka Government loans). So, if you qualify for a Fannie Mae or Freddie Mac (aka Conventional) mortgage loan, the non-borrowing spouse’s credit is not factored into the application/loan.
If you live in one of the Community Property States and are considering an FHA or VA mortgage loan, your spouse’s credit is required on the mortgage application. Let’s break down factors of your credit that affect your mortgage application so you can get a head start on making sure you get approved.
Credit Score
If one spouse applies for a mortgage loan, the non-borrowing spouse’s credit score won’t affect chances of approval. Both credit scores are factored only if both spouses apply for the mortgage loan together.
DTI (Debt-to-Income) Ratio
For FHA and VA loans, both spouses’ DTI are included on the mortgage application. Your DTI is a ratio percentage calculated using your amount of monthly debt and liabilities compared to your monthly income. It helps lenders assess risk in determining your ability to pay back debt.
Charge Offs/Collections
For an FHA loan, if either spouse has charge offs or collections, it will affect your DTI. For a VA loan, if your spouse has charge offs or collections, you can still apply but they will most likely need to be paid off before closing.
A charge off, or collection is a debt that has been paid for by a third-party creditor after a borrower has failed to pay within a certain time frame. These accounts show as a derogatory mark on your credit report and won’t be removed automatically from your credit report for seven years. Sometimes, you can dispute or pay to have them removed sooner.
Judgements/Liens
If you or your spouse has a judgment or property lien, it will affect your approval or need to be paid off before closing.
Bottom Line
Buying a home with your spouse should be about the excitement of building a home together. There shouldn’t be any drama when it comes to who’s name is or isn’t on the title and why. If there is, you can always refinance to add your spouse’s name onto the title later on. Being prepared and understanding the process together will set you up for homeownership success.
