Buy a house without your spouse: sensible or sleazy?
Can you (or should you) buy a house without your spouse?
Yes; you can take title in many ways, and one of those ways is “a married man / woman as his / her sole and separate property.”
But what does that mean? And how can it benefit you?
Turns out, buying a house without your spouse can save you a lot of money and hassle in some cases. Lending rules come with plenty of loopholes to get around credit score minimums, debt-to-income ratio limits, and huge rate increases.Verify your new rate (Sep 16th, 2019)
Why would you buy a house on your own?
There a several reasons you might want to purchase a house in your name only: to protect your interests, to plan your estate, to save money, or to qualify for a mortgage.
To get a mortgage
Many mortgage programs have minimum FICO scores that would get a couple declined if one spouse’s score is too low. Whether it’s bad credit or just a too-short credit history, if the result is a FICO under 620, you’ll be disqualified under many programs.
So it would make sense to put the mortgage in your own name if you can qualify without your significant other’s income.
To save money
A few years ago, the Federal Reserve studied mortgage costs and found something startling. Of over 600,000 loans studied, ten percent could have paid at least .125 percent less by having the more qualified buyer apply alone.
In addition, another 25 percent of borrowers could have “significantly reduced” their loan costs this way.
It may pay to check with your loan officer. For instance, if one borrower has a 699 FICO and the other has a 700 FICO, they’d save $500 in loan fees for every $100,000 borrowed due to Fannie Mae fees for sub-700 scores.See if you can qualify without your spouse. Start here. (Sep 16th, 2019)
To preserve assets
Your home is an asset which can be liened or confiscated in some cases. For instance, if your spouse has defaulted student loans, unpaid taxes or child support, or unpaid judgments, he or she might be vulnerable to asset confiscation.
By buying a house in your name only, you protect it from creditors. Note that if your spouse incurred the debt after marrying you, this protection may not apply.
This also applies if you’re buying the place with money you had before marrying. If you purchase the house with your own sole-and-separate funds, you probably want to keep it a sole-and-separate house.
For estate planning
Having the home in your name simplifies estate planning, especially if this is your second marriage. For instance, if you want to leave your house to your children from a previous union, it’s easier to do when you don’t have to untangle the rights of your current spouse to do it.
To head off divorce battles
Of course, you don’t plan on divorcing when you marry. But if the state if your union is a little shaky, and you’re the one doing the heavy lifting on the purchase, you might want to maintain control by buying in your name only.
Sole and separate property: implications
Taking title as your sole and separate property means that you both still get to live in the house. However, only you have an ownership interest. Only your name is on the deed. It’s not always 100 percent straightforward, however.
You will probably have to quitclaim
In community property states, just taking title as sole and separate is not enough. Because that’s just showing that you intend the home to be yours and only yours. It does not indicate your spouse’s wishes.
Community property states are as follows:
- New Mexico
In community property states, it’s assumed that anything acquired by either spouse during the marriage is the property of both. A quitclaim deed, which your spouse signs and you record with your county, identifies the grantor (the spouse relinquishing rights to the property) and the grantee, who remains on title.
In other states, you may also have to quitclaim, so you can’t secretly buy property without your spouse’s knowledge. And many lenders also require it for the same reason.
The person not on title can still be on the mortgage
There aren’t too many times when you want to do this, because you’re on the hook for the loan without the protection of any ownership interest. But there are instances in which it would be appropriate.
For instance, if you needed the property in just your name for estate-planning purposes, but could not qualify for a mortgage on your own, your spouse might co-sign on the mortgage for you. Or you could both be co-borrowers, because legally, only one mortgage borrower has to be on title to the property.
However, many lenders prefer that all borrowers also take title. That’s because technically, a borrower not on title is not a borrower — just a guarantor.
Guarantors are not legally responsible for making monthly payments. They are liable only for loan balances if the primary borrower defaults. Lenders have to take an extra step and sue the guarantor if the borrower defaults, and they don’t like this.
Government-backed loans in community property states
One advantage of having the mortgage and ownership in your name only doesn’t apply in community property states. If you get a government-backed loan like FHA, VA or USDA financing, your spouse’s separate debts still count in your debt-to-income ratios.
Lenders don’t consider the non-borrowing spouse’s credit, however. HUD guidelines state:
The Lender must not consider the credit history of a non-borrowing spouse. The non-borrowing spouse’s credit history is not considered a reason to deny a mortgage application.
The lender must
- verify and document the debt of the non-borrowing spouse.
- make a note in the file referencing the specific state law that justifies the exclusion of any debt from consideration.
- obtain a credit report for the non-borrowing spouse in order to determine the debts that must be included in the liabilities.
Fortunately, other loan programs don’t necessarily carry this requirement.
You can add your spouse to title later
If the main reason for purchasing a house in your own name is to have a cheaper mortgage, or to qualify for a mortgage, you can always add your significant other to the home’s title after the loan is finalized.
You can even make that a reward to your spouse for bringing up his or her low credit score.
What are today’s mortgage rates?
Today’s mortgage rates are excellent for home purchases. And remember that you may be able to reduce what you pay by only putting the most qualified applicant on the mortgage.Verify your new rate (Sep 16th, 2019)