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If you're considering an ARM, you'll want to check out HSH's comprehensive Guide to Adjustable Rate Mortgages.

If you're considering an ARM, you'll want to check out HSH's comprehensive Guide to Adjustable Rate Mortgages.

Buying a House Without Your Spouse

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couple-homebuyerWhen 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, perhaps the home is being purchased solely with funds you accumulated or inherited before you got married and are concerned about transferring assets to your partner.

If you are entering into a second marriage but may have plans to leave your house to any children from your first marriage, it will be simpler to do so if you're the sole owner.

You want to protect your home against creditors if your spouse has had defaults on other debts. If your spouse has no legal title to the property. creditors cannot attach liens against it to try to recoup funds.

There may be other reasons as well.

Qualifying for a mortgage as a sole borrower

A primary reason folks historically have taken mortgages as a sole borrower instead of borrowing with a spouse is to take advantage of one spouse's stronger credit profile.

To determine mortgage eligibility, Fannie Mae requires that lenders capture what's called a "representative credit score" that's pulled from the credit reports of the borrowers applying for the loan.

Representative scores are pulled from credit reports on file at each of the three main credit repositories -- Experian, TransUnion and Equifax.

Until recently, Fannie Mae had long required that lenders utilize the lowest median credit score of any borrower as the representative score accompanying the application. So, if you had great credit and your spouse had poor credit, the median score of your spouse would have been used to determine if you were eligible to get a mortgage and what the loan's rates and terms would be.

In cases where only two scores were available from the credit bureaus, the lender was required to use the lowest of the two available scores as the representative score. When scores were available from all three repositories, the lender was to use the lowest median score available.

This changed in late 2021. Fannie Mae now allows for the use of the average median score of all borrowers on a mortgage application. This score calculation and selection happens when the borrower's application is run though Fannie Mae's Desktop Underwriter (DU) platform.

First, DU will determine each borrower’s applicable credit score

Middle of three (3) scores or lower of two (2) scores received from the credit bureaus

Next, DU will average the borrowers applicable credit scores to ensure a minimum 620 credit score for DU-reviewed loans

Score 1

Score 2

Score 3

Borrower 1

590

619

648

Average median credit score is 656

(619 + 693 = 1312 ÷ 2 = 656)

Borrower 2

661

693

693

Pricing and Mortgage Insurance

  • The representative credit score for this loan would be 619
    (the lower of the two middle scores)
  • Pricing and mortgage insurance for this loan will be based on the representative credit score of 619

Source: Fannie Mae Selling Guide Announcement SEL-2021-08

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.

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, and any debt-to-income ratio calculation, you are likely to need a fairly strong income and low debts 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. The FHA doesn't have loan level pricing adjustments that increase the loan's costs when borrower credit scores are low. That said, in the current market, FHA mortgage lenders may not consider lending to borrowers with credit scores below 620 even though FHA allow scores as low as 580 with just 3.5% down, observes Keith Gumbinger, vice president of HSH.com.

3. Get that credit repaired. Raise a low credit score by paying bills on time every month. Review credit reports and fix any credit-report errors (and possibly following up with a rapid rescore), eliminate disputed credit accounts, and keep revolving credit accounts open -- but 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 a less-costly mortgage with both your names on it.

There are many reasons why buying a house without a partner or spouse could be the right choice for you. Fortunately, mortgage guidelines may allow folk to overcome challenges that occur appear due to lower credit scores, high debt-ratios and higher mortgage rates.

This article was updated by Craig Berry and revised by Keith Gumbinger

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