Will my spouse’s debt affect our joint mortgage application?

When a couple applies for a joint mortgage to buy a piece of real estate, their incomes are combined to give them more buying power. However, at the same time, any debt carried by either spouse is also factored in as joint mortgage debt. If one person has a lot of debt to their name, it could affect your joint loan eligibility, your loan options, and your mortgage rates.

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Will my spouse’s debt affect our joint mortgage application?

Unfortunately, if you decide to use your spouse as a co-borrower, it’s likely that their debt will affect your loan options. Put simply, mortgage lenders have strict requirements for the debt ratios that they will accept.

Generally speaking, they look for a front-end ratio of 28%, which is the amount of income that will be spent on housing costs. They also look for a back-end ratio of 36% or less, which includes all your debt payments including your mortgage loan. If you have too much combined debt, it will have an impact on your loan eligibility.

However, keep in mind that your debt ratios are not the only factor that mortgage lenders consider when approving you for a home loan. In particular, they look at your credit history, along with your total income and assets.

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Joint mortgage options if your spouse has a lot of debt

Fortunately, there are ways to get a home loan, even if you are dealing with significant debt. Read on to see which method might be best for you.

1. Apply for a mortgage as a single applicant

The first option is for one spouse to apply as a single applicant. If you apply without your co-borrower, only your assets and liabilities will need to be considered. However, the downside of applying as a single person is that only your income will be considered, which can affect your home purchase price point. Applications for shared mortgages consider both applicants' incomes and you may get approved for a larger loan.

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2. Explore other home loan options that allow for a higher DTI

If you were turned down for one mortgage program because of a spouse’s debt, that doesn’t necessarily mean that you will be denied for every mortgage. In fact, certain loan types allow for higher debt-to-income (DTI) ratios. In particular, you may want to look into government-backed loan types, like FHA loans, which may have more flexible qualifying standards.

That said, no matter which home loan types you explore, be sure to shop around. Different mortgage lenders have different rates and fees, so shopping around may help you secure a lower interest rate.

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3. Improve overall DTI

Lastly, another way to handle the situation is to take care of your debt before you find your perfect shared home. If your combined debt-to-income ratio is too high currently, you can work to improve it by paying down your debts.

One way to lower your debt is to consider a debt consolidation loan. A debt consolidation loan is a personal loan that allows you to pay off all of your existing debt and consolidate it into one, singular monthly payment.

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Can a married couple buy a house in only one person's name?

While it’s absolutely possible for a married couple to buy a house using only one person’s name, it may not be the right choice for everyone. If you decide to go this route, there are a few pros and cons that you will need to consider.

Pros

• You can buy a house right away: Applying as a single applicant gives you the freedom to search for a house right away. If you work to improve your debt ratios so you can apply with your co-borrower, it may be a while before you can start seriously house hunting.
• You may be able to secure a lower interest rate: Borrowers with higher debt ratios and lower credit scores are charged the highest rates and fees. However, if a single applicant has a strong financial background, they may be able to secure a lower interest rate.

Cons

• You may have a lower borrowing maximum: When you apply for a mortgage as a single applicant, only that person’s income will be considered when determining your pre-approval amount and you may be forced to look at lower sale prices as a result.

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