Some of the biggest commitments we can make include agreeing to a serious, long-term relationship — be that with another person or, in the case of your finances, a house for sale in San Francisco, CA, or Boulder, CO, and the 30-year mortgage that comes with it. And interestingly enough, there is a relationship between money and marriage, especially when that money is related to a mortgage payment on your home. Your relationship status can have a direct impact on your ability to get a mortgage, whether you’re single, in a long-term relationship, or married.
It’s not that a specific relationship status decides whether you can get a mortgage. But that status can influence the financial factors a lender does look at to determine whether you get approved for the home loan you apply for. Here are seven ways that your relationship status can influence your financial facts — and how that, in turn, might impact your mortgage-worthiness.
1. You’re single
Being single means you’re free to make your own choices and decisions, and that includes the choice to finance a home when and where you want. If your relationship status is single, a mortgage lender won’t hold that against you. But a single person doesn’t maintain a double-income household, which typically results in a lower total household income. So unless your income is high enough and you’ve already reduced all your other debts on your own, you may not get approved for the loan you want.
One option for single borrowers is to get a co-signer. That makes you less of a risk to the financial institution lending you the money, since the agreement states someone else will make mortgage payments if you fail to do so. Explore this option with caution: Co-signing can help you, but it has its downsides too. If you run into trouble and can’t make payments, your co-signer is on the hook, and your nonpayment can tank their credit. The financial fallout can strain or damage your relationship.
2. You’re in a committed relationship
You don’t have to be married to borrow money for a home loan. Of course, this option requires you to seriously evaluate whether you’re ready to add this complication and responsibility onto your relationship. It may be harder to split up jointly owned property if you break up and you’re not married; no one is required to go through any legal property division to walk away or end the relationship.
That being said, lenders don’t frown upon legally single individuals taking out a mortgage together. Applying jointly means you get to combine your incomes, but the lender will still look at the lowest credit score on the application. And if you’re not married, your application may look a little different from that of a married couple. Casey Fleming, author of The Loan Guide, explains that two individual applications are used when you apply for a mortgage with another person if you’re not married. These applications are then combined. “We have to name one ‘Borrower’ and the other ‘Co-Borrower,’” says Fleming. “The borrower would typically be the one with the higher income, although sometimes it’s better to use the one with the better credit.”
3. You’re married
Being married isn’t automatically a marker of success to a lender. Sure, getting a mortgage while you’re married may make the process a little easier — and help you qualify for more favorable loan terms — if you both work and have income. It also helps improve your debt-to-income ratio if you can add up two incomes and either have little debt between you or just one spouse carries a manageable debt load. But mortgage-worthiness still depends on all the financial facts in your life, like your income, debt, and credit score. If your spouse doesn’t make much income or has bad credit, that can make it difficult to get approved.
As a married couple, you can choose whether to apply for a mortgage jointly or keep the loan in one spouse’s name. That flexibility allows you to explore a variety of options that another relationship status may not afford you.
4. You’re married, but your spouse has bad credit
You may be dedicated to sharing everything within your marriage. After all, when you said, “I do” you agreed that what’s yours is your spouse’s too. So it may feel odd to leave someone off a mortgage application, but that might be the best thing to do if you’re married and your spouse has bad credit. When you apply for a loan as a couple, the lender uses the lower of the two credit scores. If your spouse has bad credit, you may not be able to qualify for the loan you want.
You may need to look at purchasing a less expensive home or saving up a bigger down payment so you finance less of the property. Or you may have to accept a mortgage with a higher interest rate and higher monthly payments. Depending on the house you’re hoping to purchase, you can accept these terms or leave one spouse off the mortgage application.
5. You’re separated
Nothing says you can’t get a mortgage while in the process of uncoupling from your partner. “However, if both people — spouses or no — are on title,” warns Casey Fleming, “then both must agree to the mortgage in order to do it. One owner may not encumber the property without the consent of the other owner.”
Fleming says that separation makes taking out a mortgage tricky because the parties involved often don’t cooperate. “If two people are on the title but one does not want to be on the loan,” he explains, “that is possible in California and in most other states. The nonborrowing owner simply has to consent in writing to the loan.”
If you live in California — or Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin — you need to be aware of the community property laws in your state. In these states, community property is everything you own together. There are a few exceptions, including property you purchased before you were married or after you obtained a legal separation. Most community property needs to be sold if you split up unless both parties can agree on how to distribute everything. Reaching an agreement here may prove challenging unless the split is uncontested by either side.
6. You’re divorced
Going through or just getting out of divorce proceedings can impact your ability to qualify for a mortgage. Splitting up jointly held property can damage both ex-spouses’ credit scores, so it’s important to work with your attorneys and possibly a financial adviser to create a strategy to avoid this. That strategy may include dealing with living under the same roof for a time until a property can be sold. You probably also need to sell your old marital home before moving on since it’s difficult for many borrowers to take out a second mortgage while still paying down the first.
7. You’re recently widowed
Lenders want to know what your income will look like in the future, including actual Social Security payments or death benefits — not what you’re qualified to receive. Lenders generally want to see that these benefits continue for at least three years. Otherwise, they won’t be used as qualified income.
For better or worse, your relationship status can play a role in your financial life when you look to take out a mortgage. It’s important to understand how your current situation may impact your loan application before you approach a lender.