The short answer is yes, a husband or a wife can apply and qualify for a mortgage without the other spouse being considered, if you live in a state where the law permits it. As with so many financial questions, the first thing to do is to check your state and local laws.
One important law to look for is community property. If you live in one of the handful of states where community property laws exist, then it’s likely your spouse’s debt will be considered in the mortgage application, even if they are not part of that application. Much of the Southwest and Illinois are community property states, according to Wikipedia. The best thing to do is to check with a broker, banker, or real estate lawyer to see the best options for the type of loan you’re looking for.
The question you might be asking is–why would anyone want to do this? While it didn’t even cross our minds when initially working out our house price “ceiling,” we quickly realized that applying separately would boost our changes of getting a mortgage and increase our purchasing power.
Applying separately can be a great idea if you are in one of these situations:
- One spouse makes little to no income, but carries significant monthly debt payments (student loans, cars, other mortgages, credit cards, etc.).
- One spouse has a great credit score, while the other’s is significantly lower.
- One spouse can document regular income, while the other is self-employed.
- You want the future flexibility of only one spouse having a mortgage on their back, whether that means for purchasing other property, qualifying for other loans, or potentially for mitigating the effects of a foreclosure or short sale.
In our case, we were essentially a single-income family, but my wife still carried student loans. Applying for a mortgage on a joint basis would have added no income to our financial picture, but would have increased our monthly debt payments. As a result, our debt-to-income ratio would be higher, and we would qualify for a smaller mortgage.
As a second consideration, we plan to buy investment property in the future and/or build another home on our current property, so the flexibility of having my wife free and clear from a mortgage may help us down the road.
Now, if you’re saying to yourself that this is “cheating the system” and setting ourselves up for financial strain, I would say that yes–this can be abused to the point where a family will struggle to make mortgage payments because of the non-mortgaged spouse’s obligations.
If you pursue this strategy, you still have to be smart about your money. You have to be just as smart as when you’re approved for a $400,000 mortgage but know you can only afford $250,000. The underwriting process is only half the equation, and you’ll be well-served to run your own numbers to avoid the mess we’ve been in for the last 5 years with the real estate market.
As for us, we knew we could still qualify to buy our home at the price we offered, even with my wife’s loan payments. But all other things being equal, I wanted the insurance policy of a little more breathing room in our payments for the mortgage underwriter to consider and approve the loan without any problems or delays. And that’s exactly what we got.
When it came time to writing the actual title to the house, it was put in both of our names. This creates a clear path of ownership should one of us pass unexpectedly.
Here’s the bottom line–the next time you buy a home, consider whether doing it together is really the best choice!