A Couple of Things about a Couple’s Mortgage
Married or not, applying for a mortgage as a couple means twice the credit scores, twice the financial histories, and sometimes twice as many paychecks. When a joint application comes with a higher income, it can be an appropriate way to increase your buying power. But, it can also have a downside.
If you’re shopping for a mortgage together, examine what each of you brings to the application. In some cases, you might find that going it alone will make your home search go more smoothly. Fortunately, your partner can still be a part of the home buying process and be included on the title as an owner of the home.
The most obvious area where applying together for a mortgage has an impact is with regards to the buying budget. If both individuals are employed with a steady income, it can substantially increase the couple’s borrowing power. However, depending on the market, the added bump from a second income may not be necessary.
If one person makes substantially more than the other, they may qualify for the required amount on their own. Similarly, each of you may have the income to move the process ahead on your own. Self-employment or a limited job history may also create additional hurdles for only one party. Regardless, you should determine if a joint application is your only path to purchase or if a sole applicant provides the flexibility to maneuver around any issues that may arise.
Credit card, medical and student debt can be a substantial barrier to homeownership for anyone. Even with an excellent credit history, a lender will be examining how your debt compares to your income. The loan you’re approved for will likely be capped at a debt-to-income (DTI) ratio of 40 to 50 percent.
If one-half of a couple has significant debt and the other has a lot less, it can make sense to apply as a single applicant. While the partner’s income won’t be considered, neither will their debt, and the result could be a more favorable DTI ratio that puts a home within reach.
In addition to debt, lenders are interested in the financial habits of any applicant. Do you pay your bills on time? Do you have savings available? Have you paid back other loans in the past?
By reviewing your credit report and bank statements, an underwriter will assess the risk of loaning you money. A higher risk may come with a higher interest rate or fewer loan programs to consider. If one of you has a record of poor financial decisions, having the other apply individually may be a smart strategy. The ability to secure a more favorable loan could save your family money in the long run.
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Nice blog and thank you for sharing it.