Buying a home can be an exciting and rewarding experience. You’ll get your own yard, your own garage, your own water leaks and your own four walls. However, it is a process that will require you to make a lot of important decisions in advance.
If your credit is in great shape but your spouse's credit is poor, his or her credit issues could either cost you a loan approval or might cause your interest rate to increase.
One of the questions you may be weighing if you plan to purchase a home is whether or not to apply for your mortgage alone or jointly with someone else, like your spouse. This decision may be more complicated than you realize and entirely unnecessary. There are pros and cons associated with either option you choose.
Joint Mortgage Pros: More Buying Power
The best benefit of applying for a mortgage with someone else is the fact that doing so is likely to give you collectively much more buying power. When you apply for a joint mortgage, your lender will be able to calculate your maximum loan amount eligibility based on both of your incomes. Practically speaking, when both of your incomes are considered, you will qualify for a larger loan amount to use for your home purchase than you would have been able to qualify for on your own. That can mean a bigger house, a better school district or a better view.
Joint Mortgage Cons: Both Credit Reports and Scores Must Qualify
When you apply for a mortgage jointly, the lender is going to review three credit reports and scores for you as well as three credit reports and scores for your spouse. All six of these reports and each of your middle numeric credit scores must meet your lender's qualification standards before your loan application will be approved. If your credit is in great shape but your spouse's credit is poor, his or her credit issues could either cost you a loan approval or might cause your interest rate to increase.
Credit Damage Risks for Both Borrowers
If your joint mortgage is approved, it is important to understand that the loan will be added to both your credit reports and your spouse's reports. As a result, both of you are at risk for potential credit damage in the future if any of the payments are missed. Of course this is true of any joint obligation, but if you ever miss a payment or default on a joint mortgage, both of your credit reports and scores could be impacted negatively. And, any foreclosure actions will be taken against both of you.
Both Parties Are Liable for the Debt
No one ever plans for his or her marriage to fail, but divorce does happen. If it happens to you and you are jointly tied to a mortgage loan with your spouse, separating that debt after the fact can be a tricky process. And tricky, in this context, equals “almost impossible.”
When you enter into a joint mortgage with a spouse, you are both equally liable for the debt. In the event that one of you decides to walk away from the marriage, you are both still equally liable for the debt. And the mortgage would still remain on both of your credit reports regardless of who is living in the house. The only way to separate the debt would be to refinance the loan into a single spouse's name or sell the house and move on with your life. It’s easier to divorce a spouse than it is to divorce a creditor.
If you don’t need two incomes to qualify for a particular mortgage loan, it might be a good idea to at least consider maintaining credit independence. Both spouses can still be on the deed even if only one spouse is the liable party. And, the bank doesn’t care who makes the payment each month, so either borrower can take that responsibility.