Can you Apply for a Home Loan without your Spouse?

When you marry, and even if you don't, it's likely you and your spouse will promise to be together for better or worse; for richer or poorer; in sickness and in health.

But, when it comes to applying for a mortgage, doing it as a couple may not always be the best choice.

Without a doubt, a couple applying for a home loan together will generally have a higher chance of approval. Typically, your combined gross income will pave the way to greater borrowing capacity and a more competitive interest rate, especially if the two of you possess excellent credit scores and ample monthly earnings.

However, there are a few instances in which it may be more practical to apply for a mortgage on your own.

One member of a relationship might have a chequered financial history or other financial obligations, or you both might prefer to keep your money entirely separate, for instance.

If you're married or in a de facto relationship and wish to apply for a mortgage as an individual, here's what you need to know.

Is it legal to take out a home loan without my spouse?

Yes, it is perfectly legal to take out a loan without your spouse in Australia. It's also legal to purchase a house without your spouse knowing about it.

But, if you're looking to buy a property solo, you should know the Family Law Act may still consider the property a shared asset, particularly if the purchase was made during your marriage or partnership.

So, while it's legal to take out a loan and purchase a property on your own, in the event of a separation or divorce, the law may not see it as solely yours, even if it was your funds that paid for it.

Property laws regarding legal rights to a home, should it be contested, differ in each state and territory. So, it's best to get professional legal advice if you're considering going down this path.

What do lenders consider when you apply for a loan without your spouse?

When you apply for a mortgage solo, even though you are part of a couple, lenders will only consider your income, assets, credit score, and existing debt. Your spouse's finances won't come into the equation, even if you intend to use some of their income to help service the loan, or even fully service the loan.

That means you must qualify for the loan on your own merits. Of course, this will impact the amount of money you will be able to borrow and, more than likely, the interest rate you will be offered.

Many lenders will also expect the deposit, or at least part of it, to come from the funds of the borrower rather than shared funds. This is part of what's called the 'genuine savings' requirement, whereby lenders want to see that the borrower has been able to accumulate savings over time.

Lenders view this as an indication you're likely also able to make loan repayments in the years to come.

Generally, most lenders in Australia don't require all people who have ownership of the home, according to its title, to also sign up for the mortgage. Most lenders will allow just one borrower. But this may depend on the policies of individual lenders.

Is a spouse liable for their partner's missed mortgage payments?

No, whether you're a married or de facto couple, one partner is not legally responsible for the other's home loan.

However, if the mortgage holder fails to make the required loan repayments, the lender may be able to access any jointly held assets in a bid to recoup funds to pay repay the loan.

Again, seeking professional legal and financial advice may be able to help you better protect joint assets and give you a clearer picture of what's at stake according to your individual circumstances.

When to consider applying for a home loan without your spouse?

When one partner has a low or inconsistent income

When you apply for a home loan, you and your spouse are generally required to submit two years' worth of tax returns, as well as recent bank statements.

These documents give your lender an idea how much money flows into and out of your household.

If you or your spouse don't have the documentation needed to prove a consistent source of income, it may be wise to leave one of you out of the mortgage application, keeping the home loan solely in the name of the consistent income earner instead.

Some lenders are reluctant to lend to earners with unstable income and mightn't offer the most competitive interest rates, as they could regard the loan as higher risk.

See also: Getting a Home Loan with Low Income

If this is the path you choose to go down, you'll need to ensure the solo applicant's monthly salary is high enough to qualify for a decent mortgage on their own financial merits.

If one member of a couple has excessive debt or credit card use

Another reason to go solo when applying for a mortgage might be if you or your spouse, as an individual, has existing debts.

Typically, a person with notable outstanding debt runs a much higher risk of their mortgage application being denied due to a lack of borrowing power.

If one partner has significant debt obligations and the other doesn't and you both apply for a mortgage together, the bank or lender might consider how you would both cope with a monthly mortgage payment on top of their existing repayments.

In worst-case scenarios, it could deem you too risky to lend to as a couple, even if one partner would be eligible by themselves.

See also: How to Get Rid of Credit Card Debt

If an individual has a low or non-existent credit score

When you apply for a mortgage with your spouse, it's important to understand that your high credit score will not make up for your partner's poor credit rating, or vice versa.

Lenders will likely view an applicant with a low credit score as a heightened risk.

That could lead to your application being denied or your lender offering you a higher interest rate than you would be otherwise be eligible for.

See also: Easy Ways to Check your Credit Rating

If you know you or your spouse has a low credit score or poor credit history, it may be wise that the partner with the better credit score applies under their own name. The same could be said if one spouse has no credit score.

Of course, there's also a high possibility that your mortgage application will be rejected if your spouse has past foreclosures and bankruptcies recorded in their credit history.

Possible identity theft

Unfortunately, there is little you can do if one of you has been a victim of identity theft and debts have been racked up in either of your names.

If your spouse or partner has fallen victim to identity theft, it could be better to apply for a mortgage without them, even if the theft was through no fault of their own.

Proving identity theft can be a long and tedious process and it simply mightn't be practical to wait to apply for a home loan.

How to improve your credit score

If you have the lower credit score in your partnership, it could be wise to start working on lifting it.

There are several things you can do to improve your credit rating, including keeping your credit report in order.

While you have active credit accounts for products such as personal loans, credit cards, or other debt products, you need to ensure you're paying your bills on time.

Lenders pay attention to how diligent you are at settling your dues and how punctual you are with your payments. If you're the forgetful type, it could be worth setting up monthly alerts or automatic payments to stay on top of your due dates.

Another step in improving your credit score is avoiding too many 'hard' credit enquiries. A 'hard' enquiry is when you submit an application for a loan or credit product, triggering a prospective credit provider to request your credit report.

This request is noted on your credit report for some time after the fact, even if the application is denied.

Having too many hard enquiries suggests you've applied for multiple loan products and have been rejected, which can be a red flag to potential lenders.

Make sure you only apply for credit products you're confident you're eligible for and have a good chance of being accepted.

Leaving your spouse off the mortgage vs leaving them off the property title

It's also worth noting that there's a difference between leaving your spouse off the mortgage and leaving them off the title of the property you purchase.

The mortgage is the loan, while the title is an official legal document that states ownership of the property.

Whoever is on the mortgage is responsible for making the repayments on the home loan, regardless of whose name - or names - are on the title.

Again, there are legal, financial, and tax implications associated with putting one member of a couple on a title instead of both, so it's always best to seek professional advice before you do so.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

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