When buying a home as an unmarried couple, qualifying for a mortgage is one of the more complex items on your to-do list. Should you apply together or only have the person with the higher credit score apply? What if one of you has substantial debt? Can you both own the home if only one of you is listed on the mortgage?
To help you get a quick overview of qualifying for a mortgage with a significant other when you’re not married, here are some of the most common questions we get on the topic.
Applying for a Mortgage as a Couple
Most buyers prefer to apply for a mortgage as a couple because they want to share the responsibility for the mortgage debt. In this case, you would be “co-borrowers.”
A key benefit of applying for a mortgage as co-borrowers is that you get to use your combined income. Since your income is one of the main factors that decides how much money you can borrow, the more income you can show, the better. If neither person makes enough money to qualify for the loan on their own, you will need to qualify as a couple.
When applying for a mortgage as a couple, both partners’ financials will be reviewed. This could be problematic if one person has substantially lower credit than the other since lenders will typically use the lower credit score to determine the interest rate. Excessive debt could also be an issue. If your combined debt-to-income ratio exceeds 36%, you may end up with a higher interest rate.
Having Just One Person Apply for the Mortgage
If one person’s income is enough to qualify for the amount you need, it may make sense to have only that person qualify if:
- The other person has a substantially lower credit score, or
- The other person is carrying excessive debt (like student loans or credit card debt)
Having the person with stronger finances apply alone might get a better interest rate or more favorable terms than if both people applied together.
There are two important things to keep in mind when having just one person apply:
- The applicant is solely responsible for the entire mortgage debt; the other person is not legally responsible.
- The other person cannot claim any mortgage interest deduction on their taxes; only the applicant will be able to claim the deduction.
Can I Add a Co-Borrower to a Loan Later?
Perhaps you want to share the debt obligation, but you can qualify for better terms if only one person applies. In that case, you might be wondering if you can add your significant other as a co-borrower once his or her credit score or debt ratio improves.
You can add a co-borrower to a loan at a later date, but this requires refinancing the loan. So you would need to submit new loan applications, and you would be subject to interest rate fluctuations. Because of the fees associated with refinancing and the uncertainty of future interest rates, it’s probably best not to count on adding a co-borrower at a later date.
How Can We Split the Ownership?
Even if you’re not listed on the mortgage, you can still have an ownership stake in the home. You would just need to make sure you’re named in the deed. The deed lists the rightful owner(s) of a piece of real estate and is separate from the mortgage.
There are two options for splitting ownership: joint tenancy and tenants in common.
Joint tenancy is an option when a couple wants to split the ownership equally because they split costs equally. In joint tenancy:
- Neither owner can sell the property without the consent of the other.
- There is a “right of survivorship” clause. This means that if either owner dies, the other owner automatically inherits the deceased owner’s share (you cannot name someone else to inherit your share of the property).
Tenants in Common
Tenants in common is a popular route for buying a home as an unmarried couple because:
- It allows you to split ownership unequally. Perhaps one person pays a higher percentage of the down payment and/or mortgage, so both parties agree to give that person a higher ownership interest in the property.
- There is no right of survivorship. Each person can will their share to any beneficiary (perhaps a child from a previous relationship).
Tenants in common is a more flexible structure than joint tenancy, so in many cases, it is the better fit for buying a home as an unmarried couple.
Ultimately, the process for buying a home doesn’t vary greatly based on your marital status. It all comes down to who will be held responsible for the mortgage payment. If you hope to share that responsibility with your partner, the notes above will apply to your mortgage process.
Do you have other questions about buying a home as an unmarried couple? We’re here to help guide you through the mortgage loan process. Give us a call at 757-296-2148 or start your application today at ovmfinancial.com/QuickStart.
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