There are a number of reasons why one spouse stays off a home loan, says John Walsh, CEO of Milford, Conn.-based Total Mortgage. That person’s high debts, low income orpoor credit historycould be deal-killers or trigger a higher interest rate.
When a mortgage qualification involves co-borrowers, lenders use the lowest credit score among them to determine the rate, Mr. Walsh says. The threshold for the best jumbo-mortgage rates usually is a score of 740, but some lenders may want 760 or higher, he adds.
If both spouses’ scores are lower than 740, the math can still work in favor of a single borrower, Mr. Walsh says. And even if the difference in credit scores is slim—one spouse has 700, the other 699—that one point can make a difference in the loan’s interest rate, Mr. Walsh says. However, some couples will need both incomes to qualify, especially for jumbo mortgages, which have bigger balances than government-backed loan limits of $417,000 in most places and $625,500 in some high-price areas, he adds.
A second reason some spouses stay off the mortgage is to keep their finances separate, says Mathew Carson, a mortgage broker with San Francisco-based First Capital Group. In some cases, they may just have purchased the property before marriage and don’t want to refinance, but it could also be a strategic decision so that the spouse without the mortgage credit liability can qualify for other big-ticket purchases, he adds.
“I’m the only one on my [mortgage] loan,” Mr. Carson says. “This keeps my wife’s credit clean if we want to buy a car or anything like that using her credit.”
A third reason for borrowing alone occurs most often with jumbo mortgages, where borrowers are more likely to be self-employed and/or have other more complex income breakdowns, including bonuses and commissions, says Bill Banfield, vice president of Quicken Loans.
If one spouse has a straightforward job with regular earnings on W2 statements and enough income to qualify, it could reduce stress to not have to assemble all the documentation required to also qualify the self-employed co-borrower, Mr. Banfield says.
Before one spouse goes solo on the loan, there are two things to keep in mind. First, a co-borrower doesn’t have to have income to be on the note—as long as the other spouse meets the lender’s income requirements, Mr. Carson says. Co-owning the home and having both names on the note benefits anonemployed, stay-at-home spouse. The mortgage helps maintain a credit score that could be important later, especially in the unfortunate event of a divorce or death of their spouse, Mr. Banfield says.
“If you take yourself off the grid and aren’t on a mortgage or car loan, you may not retain your credit history.” he adds.
Also, a nonborrower spouse filing a separate tax return can usually take the mortgage-interest deduction for any portion paid by that spouse up to a limit of interest on $550,000 of mortgage indebtedness, says Mary Canning, dean emeritus of Golden Gate University’s School of Taxation and Accounting in San Francisco. The spouse must have “beneficial” or “equitable” ownership by Internal Revenue Service standards, she adds.
Some other considerations when deciding whether one spouse should go it alone on a jumbo mortgage:
• Location matters.In community-property states, such as California, lenders may still consider both spouses’ credit scores and/or debts in the qualification process, even if only one borrower is on the loan, Mr. Walsh says.
• Asset gift.Even if one spouse isn’t on the loan, he or she can contribute to the down payment by gifting cash or assets to the borrower, Mr. Banfield says.
• For sale by both owners.Both spouses also don’t have to be on the mortgage or on the title to receive the full $500,000 capital-gains exclusion on their tax return following a home sale, Ms. Canning says. However, the couple must file a joint return, both must have used the home as their primary residence for at least two of the past five years (living together before marriage also counts), and neither spouse can have used the exclusion on a different home within the past two years, she adds.
Author:Paige Springer Phone: 936-537-0239 Dated: November 30th 2016 Views: 7,397 About Paige: Paige Springer is a seasoned industry expert who prides herself on superior market knowledge, aggres...
View our latest blog posts in your RSS reader. Click here to access.
Your home is the most important place on earth. It is your sanctuary from the world. It keeps your family safe. It's where life unfolds and memories are made. Your home is your castle. When life requires you to buy or sell your home, it's one of the most important events in your life. We promise to never forget that. The distinguished Houston Castles team consists of elite real estate experts committed to the fulfillment of your real estate goals. The only thing more important is the quality of service you experience during that process.
Our real estate professionals are seasoned industry experts who pride themselves on superior market knowledge and first-class customer service. Houston Castles is led by one of the most successful and recognized Luxury Realtors in Houston. Rory Higgins is consistently acknowledged as one of the top Realtors in the industry.
After his first year in real estate with Keller Williams Realty, Rory Higgins received the exclusive Rookie of the Year Award for the entire South Texas Region. By his fourth year in real estate, Rory was ranked in the top 1% of Realtors nationwide. Since then, he has continued to achieve extraordinary success and receive numerous industry awards locally and nationally. He has been featured on-air dozens of times by Houston radio stations as a source of insight on Houston real estate and featured in local publications including the Houston Chronicle multiple times.
Prior to becoming a Luxury Realtor, Rory spent 4.5 years as Vice President of Marketing and Operations in the mortgage industry. He has been an active real estate investor for more than 10 years. Rory is a veteran of the U.S. Marines and served one tour in Iraq. The knowledge and expertise gained during these experiences has proven invaluable in laying a strong foundation for Rory's extraordinary success as a Luxury Realtor. Texas Real Estate Commission Consumer Protection Notice
A Lone Spouse on a Home LoanBy Anya Martin | Jan 11, 20
""Simply put, Rory was amazing. This was a difficult project from many unrelated aspects and Rory handled EVERYTHING for me. I could not have made it through this process without him. I will use him again in the future and will recommend him to EVERYONE I know. There are not enough superlatives to describe his tremendous performance in every aspect of this sale. I will never be able to put into words how overwhelmingly satisfied I am with his performance during EVERY phase of this sale."