Can you apply for a home loan without your spouse?

By Gerv Tacadena

A man's partner looks on as he signs a mortgage

When you get married, you and your spouse promised to be with each other for better or worse; through thick and thin; in sickness and in health. When it comes to applying for a mortgage, however, this may not always be the best choice.

Without a doubt, there is a higher chance of approval when you apply for a mortgage with your spouse, as your combined gross income typically allows for a larger 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 several instances when it would be more practical to apply on your own.

Lower or inconsistent income

To apply for a mortgage, you and your spouse are generally required to submit two years of tax returns and recent bank statements. These documents give the lenders an idea how much money flows into your household.

One problem with this can arise if your spouse does not have the necessary documentation to show a consistent source of income. If your partner does not have tax returns or tax statements, then it would be wise to leave him or her out of the mortgage application.

If you do, make sure that the remaining partner has a high enough monthly salary to qualify for a decent mortgage.

Excessive credit usage

Another reason to go solo when applying for a mortgage is if your spouse still has a huge debt which he or she has yet to settle. Typically, high outstanding credit – this usually 20% or more of your credit limit – increases the chances of your mortgage application being denied.

If you and your partner apply for a mortgage together, banks and other lending institutions will take a look at your total monthly debts, including a possible monthly mortgage payment. If your obligations are over 40% of your combined gross monthly income, it's not likely that you will get a great offer on a mortgage or to have your application be even considered.

Low credit score

When applying for a mortgage with your spouse, you should know that a high credit score would not make up for your partner's bad credit rating. For lenders, low credit scores will always be flagged as a risk, so either the application will be denied or you will be charged with a higher interest rate.

The ideal situation is for both of you to have good-to-great credit scores, not necessarily equal but also not be miles apart. If you know that your spouse has a bad credit rating, it may be wise to keep him or her in the application process and apply under your own name.

The same thing goes if your spouse has _no_ credit score. For banks, individuals with a non-existent credit score are a risk.

Additionally, there is also a high possibility that your mortgage application will be rebuffed if your spouse has past foreclosures and bankruptcies recorded in their credit history.

Possible identity theft

There is nothing more frustrating than discovering that your identity has been used by someone other than you. Without knowing it, your credit has already ballooned.

If your spouse has fallen victim to identity theft, it can be better to apply for a mortgage without them, especially if you already found the property you want to buy. Proving identity theft is a tedious process, and it may not be practical to wait that long to apply for a home loan.

To avoid this unforeseen circumstance, it is best to regularly check your credit scores. While identity theft is somewhat rare, it's always better to be safe and secure.

Tip: improving your credit score

If you happen to have the worse credit score in your partnership, it would be a good idea to start working on improving it. There are several things you can do to improve your credit rating, one of which is keeping your credit report in order.

While you keep your credit accounts active, you also have to make sure that you pay on time. Lenders pay attention to how religiously settle your dues and it would be beneficial for you to be punctual in your payments. If you are the forgetful one, make sure to set up monthly alerts to stay on top of your due dates.

Another step to improving your credit score is avoiding too many hard credit enquiries – when a prospective credit provider requests your credit report. Having too many hard enquiries suggests that you have already applied for many loan products and been denied, which is not very attractive to potential lenders. Make sure that you only apply for credit if your credit score is strong enough that you will be accepted.