Finding the perfect partner and working together on financial goals, like buying your dream home, is a goal many of us have. But when you finally meet the right person and the time comes to go house hunting and get that mortgage preapproval letter, many of us assume that both names should go on the loan application.
But according to UMB Bank’s national mortgage sales manager Matthew Locke (speaking with GoBankingRates), there are a number of scenarios where it makes more sense for someone to exclude their partner from a mortgage loan application.
Reasons Not To Take On A Joint Mortgage
While some may assume that leaving a partner off a mortgage might be indicative of a troubled relationship, that is definitely not always the case. There are four solid reasons that Locke touched on.
1. One Of You Has A History Of Bad Credit
The credit history of both applicants is factored into your mortgage interest rate. If one of you has a significant history of not making payments on time, this could lead to a much higher monthly payment due to a higher interest rate.
2. One Of You Has A Large Amount Of Debt
Your front-end and back-end debt-to-income (DTI) ratios are crucial to getting approved for a mortgage. The front-end ratio shows what percentage of your income would go toward your housing expenses (mortgage, insurance, property taxes). The back-end ratio shows how much of your income is needed to cover all of your monthly debt obligations.
Ideal front-end ratios are around 28% or less, although some lenders will approve an application with a ratio as high as 45%. On the back end, the ideal ratio is 36% or less.
If one of you is carrying a large debt load, that could make your debt-to-income ratio too high to secure a mortgage. That debt load could also put your DTI too close to the limits and trigger a higher interest rate.
3. One Of You Has A Lower Credit Score
A history of bad credit and/or a large amount of debt will likely cause a low credit score. Including a partner with a low credit score on a mortgage application is a bad idea, because the interest rate for which mortgage applicants qualify defaults to that lower score. That higher interest rate could end up costing you thousands over the life of the loan.
4. One Of You Has Little Or No Income
Excluding a partner who has little or no income from a mortgage application can also be advantageous. This strategy makes it easier to qualify for a down payment assistance program and could end up saving you some money.
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Also, if one of the partners is self-employed, you may want to leave them off the application because self-employed individuals require more complicated documentation. Just another thing to keep in mind.
Even If You’re Not On The Mortgage, You Can Still Own The House
The thought of not being listed as a borrower on your home’s mortgage can definitely cause an emotional reaction, but it doesn’t mean you don’t own your home just as much as your partner.
Suggest’s managing editor Kristen Philipkoski bought a house with her husband in 2021. She was self-employed at the time, and their mortgage broker recommended that only her husband be listed on the mortgage.
She’s still on the title along with him, so she owns the home regardless of who technically owes money to the bank.
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“I did feel slighted initially, but then I realized that I kind of have the best of both worlds. I’m not responsible for the mortgage, but I still own the house,” she said.
We should note that the ability to do this varies from state to state, so it won’t always be an option.
When It’s A Good Idea To Put Both People On The Mortgage
In a perfect world, both partners would be on the mortgage. It’s the way to go if you both have high incomes and good credit.
That way you’ll likely get approved for a higher mortgage amount with a decent interest rate since your combined income and assets will be considered. It’s a more straightforward, better way to make buying your dream home a reality.