Yes, your relationship status could affect your mortgage worthiness. A dual income may help enhance your financial credit, but being part of a couple could also create problems in a home buying process.
Being married doesn't guarantee a good standing as lenders don't actually look at the relationship status on an application. The more important considerations is the name (or names) on the loan, who's repaying the loan, and who has legal ownership of the property. When banks review a borrower's creditworthiness, financial stability, and where to make the monthly payments, they don't look at whether the borrower is single or married.
"We don't look at customers differently; we look at them as fact," says Chris Copley, regional sales manager at TD Bank. "You can have an occupying co-borrower, and that's fine. If you called and said you're single, that's fine. We're looking at the loan based on what's factual and what your income is and what you're looking to buy."
However, according to Trulia, there are unexpected ways that your relationship status can affect your mortgage application and here's how:
You're newlyweds
In some states, real estate is considered a marital property, and to whom the deed and mortgage is named is crucial.
"If it's one person, you want to [consider whether] you want your future spouse to have legal rights to the property," says Copley.
You're separated with a pending divorce
Every state has their own definition of marital property, and this makes things more complicated when determining a marital estate and how it should be divided.
Those who are separated can still apply for a mortgage; however, series of reviews may be required and copies of separation agreement and divorce decree will be needed to determine who legally owns the property.
Your spouse has bad credit
"It's important to understand what your credit is like and what your spouse's credit looks like," says Copley. Lenders use the lower credit score out of the two, and if you apply for a loan as a couple and your partner has bad credit, there's minute chance that you will be granted the loan you want.
You may however be offered of a smaller mortgage, a lower loan-to-value ratio loan, or a mortgage with a higher interest rate that of course constitutes to a higher monthly payment. Depending on the property you are looking at, you can pick any of those terms or just take one spouse off the mortgage application.
Your spouse doesn't meet income requirements
When verifying income, lenders look at two years of W-2s and tax returns. If your spouse has a business or works as an independent consultant, they will need to prove a steady income of that span of years and this would require more than two years of documentation. Without these, your partner's income will not meet required number to be granted a mortgage.
Your expenses and debts are too high
"From a regulatory standpoint, there's a functional inability today to get into a loan or to get a new mortgage without proving factually that you're able to afford that payment," says Copley. Your debt-to-income ratio will have to be reviewed by the lender and it will be based on your income and items on your credit report plus the new monthly payment to calculate the amount of payment you can afford. Your qualifying ratio should be less than or equal to 43%.
