Updated by Craig Berry
When you get married, the financial implications include taxes, insurance, retirement accounts and potentially your mortgage.
If buying a home with your spouse has negative consequences, it may be worthwhile to consider buying on your own.
Why buy a house without your spouse?
There are a number of reasons that buying a house without a partner or spouse may be worthwhile.
For example, let's say your credit scores are excellent. Your spouse's however, are not. Does this make it a challenge to qualify for a home loan with the lowest mortgage rates and fees?
In a word? Yes.
If your spouse's credit score is under 620, you may want to apply for a mortgage in your name only. If you don't, mortgage lenders may either saddle you with higher mortgage rates, higher fees, or even deny your mortgage application.
Home loans: based on the worst credit score
Unfortunately, when it comes to getting a home loan, you don't get to take one of two spouses' higher credit score. You don't even get to average the scores. Mortgages are typically based on the worst credit score among two or more borrowers.
But can one person get a mortgage without their spouse and would it really save money?
Recently, the Federal Reserve released a study regarding mortgage costs. Of 600,000 mortgage loans that were studied, 10% could have paid .125 percent less by having the more qualified buyer apply on their own.
If your spouse has a 695 credit score and your score is 700, for instance, the savings in loans fees would be $500 for every $100,000. This is due to Fannie Mae's sub-700 score guidelines.
Apply for a mortgage without your spouse
The good news, fortunately, is that just because your name is the only one on the mortgage loan, it doesn't mean both you and your spouse can't be listed as the owners of the home. You can still put your spouse's name on the home's title even if only your name is on the loan.
You may be wondering, can one person get a mortgage? Can you even buy a home on your own?
A spouse who applies for a mortgage on their own needs enough individual income to qualify for the monthly payment on their own. The lender counts only your income, not your spouse's when determining your ability to repay. Since your spouse's income is excluded from the "ability-to-repay" calculation, also known as the debt-to-income ratio, you are likely to need a fairly strong income to qualify individually.
Buying homes in community property states
Married couples share liability and risk in the eyes of creditors, even when married and buying a house without your spouse. This is especially true when living in community-property states.
In California, for example, you are often considered a single entity when it comes to acquiring major debts or liabilities, such as taxes or a mortgage. In order to avoid being held responsible for your spouse's debt, you may have to file taxes separately rather than jointly, or apply for a mortgage alone, rather than jointly.
States vary when it comes to community-property laws. Community-property laws make any asset acquired within the marriage equal property of both spouses. The same goes with debts acquired within the marriage in a community-property state.
Community-property laws vary by state. There are only 13 states which are considered community-property states and the laws are more complicated than those of common-law states.
What are your home buying options?
Below are three ways to approach a home purchase:
1. Buy a house on your own: If your income is high enough, it might make sense to apply for a mortgage without your spouse. This is especially true if your spouse's credit score leaves you with a more expensive mortgage.
2. Apply for an FHA loan: If a spouse or partner's credit score is making conventional financing difficult, consider a mortgage insured by the FHA. While the FHA doesn't have specific credit score requirements, FHA mortgage lenders typically reserve the best rates for borrowers with credit scores of 620 or above,observes Keith Gumbinger, vice president of HSH.com.
3. Get that credit repaired: If you're his or her low scores by paying bills on time every month, fixing any credit-report errors (and possibly following up with a rapid rescore), eliminating disputed accounts, and keeping revolving credit accounts open but learning to use them wisely.
Maxine Sweet, vice president of public education for Experian, says that consumers with bad credit can start seeing improved scores after just six to nine months of mature financial behavior. Depending on how low the spouse's score is, it can take less than a year for your spouse to have a solid enough credit score to help secure your mortgage.
There are many reasons why buying a house without a partner or spouse could be the right choice for you. Fortunately, mortgage guidelines allow many people to get around challenges that often appear due to lower credit scores, high debt-ratios and higher mortgage rates.
Leaving your spouse off your mortgage or title could save you tons of money, as well as significant home loan hurdles.
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