You and your wife are ready to purchase your dream home and are in the process of applying for a mortgage. Now comes the difficult question, should you apply alone or with your spouse? Before you make this decision you must understand all your options and conduct any necessary background research.
Learn about the pros and cons of applying for a mortgage as a single person vs. as a couple.
1. Credit Scores
Credit scores play a significant role in the mortgage process. A low credit score might cause considerable problems. When applying as a single person, lenders will utilize the middle of your three scores to assess your eligibility and terms of the mortgage. But if you apply for a mortgage with your spouse, the lender will use the lower of your two middle scores. Therefore, if one of the partners does not have a good credit score then the partner with a solid credit score should apply for the mortgage as a single applicant.
However, if you want to secure a mortgage as a couple, you should work on improving your credit score beforehand. This entails acquiring a report from each of the three credit agencies, reviewing each of them, and taking the required steps to improve your credit.
2. Mortgage Interest Rates
If one person has fairly good credit and the other has excellent credit, the person with better credit can apply for the loan on their own. This will result in a reduced mortgage rate and save you thousands of dollars on your mortgage in the long run. However, the biggest disadvantage of this is that a single house buyer must now qualify without the assistance of their spouse’s income. So, for this to work, the spouse on the mortgage application will need to have good credit and a substantial income.
3. Buying Power
If you do not include your spouse on your mortgage application, then only one income will be counted on the application. This could have a significant influence on your borrowing capabilities.
Simply put, the greater the amount of income mentioned on an application, the more money a mortgage lender will lend (as long as the credit score is acceptable). As a result, when couples apply for a mortgage together, their affordability improves and they can afford more expensive mortgages than single applicants.
4. Debt-to-Income Ratio
In most circumstances, applying as a couple can help you increase your debt-to-income ratio (DTI). It is a critical metric used by lenders to assess how much house you can buy. Lenders compare your total monthly earnings to your monthly bills, which include mortgage payments, credit card bills, student loans, and vehicle loans. Therefore, higher incomes naturally reduce your debt and boost your affordability.
What works for one relationship may not work for the next. It will depend on your specific combination of circumstances more than anything else. Obtaining a mortgage does not have to be a daunting experience; just do your homework ahead of time. In this scenario, spending the extra time to ensure that both of you understand your decision is critical.