Question about applying for a mortgage with a non-working spouse

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JamesNYC
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Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 9:42 am

Thank you in advance for your help,

Over the next few months we plan to apply for a mortgage. Our situation is that I earn around $300,000 per year. My Wife is currently a stay-at-home Mom and thus does not have an income. We are currently renting and this would be our first time home purchase, if that matters.

My Wife and I both have some small and manageable debts to our name, nothing that should be an issue keeping our DTI to an acceptable level on the mortgage, however I'm starting to work to ensure our Credit reports are 800+ before application-time.

I am wondering the pros and cons of applying for the mortgage on my own vs applying along with my Wife. Since I make all the income, is there potential benefit to having everything in my name? Specifically, my Wife's credit wouldn't be considered on the mortgage application, correct? In that scenario I would only need to focus on maximizing my credit score and could presumably leave hers as is?

Thanks in advance for any insights and wisdom,

James

retiredjg
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Re: Question about applying for a mortgage with a non-working spouse

Post by retiredjg » Sat Nov 16, 2019 9:47 am

Before you go to any trouble over this, be sure that 800+ is necessary to get the best rates. I think it is somewhat lower than that - maybe 770 or something like that?

It sounds like your credit may already be good, maybe even good enough.

stan1
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Re: Question about applying for a mortgage with a non-working spouse

Post by stan1 » Sat Nov 16, 2019 9:56 am

If neither of you haven't missed any payments on your debts and they are "small and manageable" it won't impact your ability to buy a house at all. That's assuming no bankruptcies or foreclosures. What is your credit score now?

If your wife is on the loan with you and you pass away she still has the loan. She may want to sell the house if you pass away but if she is on the loan she has more options and isn't forced into a bad situation or a quick decision.

I see no reason to only have you on the loan. Both of you should have credit records.

retiredjg
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Re: Question about applying for a mortgage with a non-working spouse

Post by retiredjg » Sat Nov 16, 2019 9:59 am

Credit Karma has a chart for mortgage rates and the highest level is "above 760". That might mean there is no benefit in being higher than 760. Or it may vary from bank to bank.

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JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 10:05 am

Thank you for your replies.

Each of our credits are in the mid 700's. This is our first home purchase and I don't want to leave anything to chance, really. I am worried that if we apply jointly for the loan our credit-card utilization will be slightly higher than 30%. That would be one potential factor that could make the credit score lower and it's also a revolving number that's slightly harder to control for month to month (Since credit cards report on different dates and some of the numbers are our regular monthly purchases).

So if I apply to the house individually, I have one less variable and can try to ensure that my utilization is under 30%.

I'm just trying to understand if there is really any benefit to applying jointly at all. I presume it wouldn't matter how we did the loan for my Wife to have ownership rights to the home in the event of death (or divorce) in any case.

THank you!

stan1
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Re: Question about applying for a mortgage with a non-working spouse

Post by stan1 » Sat Nov 16, 2019 10:12 am

Why are you carrying small amounts of credit card debt if you make $300K/year even in NYC (yes its expensive)? Are you not paying off all the cards each month?
Last edited by stan1 on Sat Nov 16, 2019 10:13 am, edited 1 time in total.

MathWizard
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Re: Question about applying for a mortgage with a non-working spouse

Post by MathWizard » Sat Nov 16, 2019 10:12 am

If both of you are on the mortgage, the bank can go after either of you for the money.
They may be able to anyway, since you are married, and presumably responsible for each other's debts.

I see no downside to adding spouse, and potentially upside.

As a side note:
If I were the spouse, I would want my name on the house.

I can't even imagine suggesting such an approach to my spouse.

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Brianmcg321
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Re: Question about applying for a mortgage with a non-working spouse

Post by Brianmcg321 » Sat Nov 16, 2019 10:13 am

JamesNYC wrote:
Sat Nov 16, 2019 10:05 am
Thank you for your replies.

Each of our credits are in the mid 700's. This is our first home purchase and I don't want to leave anything to chance, really. I am worried that if we apply jointly for the loan our credit-card utilization will be slightly higher than 30%. That would be one potential factor that could make the credit score lower and it's also a revolving number that's slightly harder to control for month to month (Since credit cards report on different dates and some of the numbers are our regular monthly purchases).

So if I apply to the house individually, I have one less variable and can try to ensure that my utilization is under 30%.

I'm just trying to understand if there is really any benefit to applying jointly at all. I presume it wouldn't matter how we did the loan for my Wife to have ownership rights to the home in the event of death (or divorce) in any case.

THank you!

Banks like having more people on the loan.
More people to call if you were to skip town.

But in reality, your scores are fine.
My wife and I got a mortgage at the lowest rates and we didn’t even have a credit score. She was not working. We hadn’t used a CC or auto loan in over ten years. The bank used manual underwriting and common sense to see our net worth was more than the house we were purchasing and got us the loan.
Last edited by Brianmcg321 on Sat Nov 16, 2019 10:16 am, edited 1 time in total.
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catlady
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Re: Question about applying for a mortgage with a non-working spouse

Post by catlady » Sat Nov 16, 2019 10:14 am

One benefit to her being on her mortgage is that it will help her credit score in the long run.

mortfree
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Re: Question about applying for a mortgage with a non-working spouse

Post by mortfree » Sat Nov 16, 2019 10:18 am

Reduce your use of the credit cards before you start the mortgage process.

noco-hawkeye
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Re: Question about applying for a mortgage with a non-working spouse

Post by noco-hawkeye » Sat Nov 16, 2019 10:19 am

My wife has had periods where she was not working (raising kids), working part time, and working full time.

We've viewed the title on the house, the mortgage, as well as a lot of the other titles / car loans etc - as something we do together. This is something that was more a matter of principle than a strict numbers decision. You guys might come around to the same decision too - that not everything needs to be optimized and sometimes these decisions are as much philosophical as they are financial.

nguy44
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Re: Question about applying for a mortgage with a non-working spouse

Post by nguy44 » Sat Nov 16, 2019 10:30 am

mortfree wrote:
Sat Nov 16, 2019 10:18 am
Reduce your use of the credit cards before you start the mortgage process.
Totally agree with this. The priority should be to eliminate all other debt before you apply for the mortgage.
noco-hawkeye wrote:
Sat Nov 16, 2019 10:19 am
My wife has had periods where she was not working (raising kids), working part time, and working full time.

We've viewed the title on the house, the mortgage, as well as a lot of the other titles / car loans etc - as something we do together. This is something that was more a matter of principle than a strict numbers decision. You guys might come around to the same decision too - that not everything needs to be optimized and sometimes these decisions are as much philosophical as they are financial.
Excellent point. I have also viewed this as something we do together, even though my wife was not working when our kids were young.

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JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 10:53 am

Thanks for all your replies!

I have read that when you apply jointly for credit they will use the lower of the two credit scores. My Wife's credit score is lower than mine. Because she has likewise has no income, I really don't see any upside to having her on the application. Am I misunderstanding something?

I don't understand the logic that having a spouse's name on a mortgage provides some sense of piece of mind that's worth paying more interest; for me it is purely a financial calculation. My Wife and I have been married before we've had any net-worth at all; there is no concept of pre-nuptial agreements or individual assets. We are obviously the sole beneficiary on all our financial documentation. So unless there is something I am overlooking, I don't see what difference it makes really.

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JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 10:57 am

Relating to Credit Cart utilization, nearly 100% of our credit card balances are 0% balance transfers with incredibly generous terms given our high credit (For example, 0% APR with 1% balance transfer fee for 24 months).

What I am trying to accomplish is to shift the credit card debt to an installment loan to bring the utilization down to under 30%, but an installment loan will have an interest rate closer to 10%. I do not want to shift more out of the 0% APR than I have to.

Hopefully the above clarifies more why we have credit card debt when our income and net worth is much higher, and thus explains why I am trying to focus on lowering the credit cart utilization and thus improve credit score, and why I'm considering the pros/cons of doing this for just myself or for both me and my spouse.

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RickBoglehead
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Re: Question about applying for a mortgage with a non-working spouse

Post by RickBoglehead » Sat Nov 16, 2019 11:00 am

JamesNYC wrote:
Sat Nov 16, 2019 10:53 am
Thanks for all your replies!

I have read that when you apply jointly for credit they will use the lower of the two credit scores. My Wife's credit score is lower than mine. Because she has likewise has no income, I really don't see any upside to having her on the application. Am I misunderstanding something?

I don't understand the logic that having a spouse's name on a mortgage provides some sense of piece of mind that's worth paying more interest; for me it is purely a financial calculation. My Wife and I have been married before we've had any net-worth at all; there is no concept of pre-nuptial agreements or individual assets. We are obviously the sole beneficiary on all our financial documentation. So unless there is something I am overlooking, I don't see what difference it makes really.
"I have read" drives me crazy. Pick up the phone and call a bank you are considering, and ASK THEM THE QUESTION - if we apply jointly, do you look at both credit scores, just the lowest, just the highest? If in fact that bank will use the lowest, then you can take steps to increase the score prior to applying.

The second issue - joint mortgage - should be a no brainer. First, your bank may not allow the deed to be recorded with both names if both names aren't on the mortgage. You want the house jointly owned. Second, if you pass away, with joint ownership and joint mortgage, your wife can easily transition to her owning everything. If you get a mortgage in your name, the bank can call the mortgage at your death.

When we bought our second home, my wife did not work. Joint mortgage, joint deed. When we bought our third home, same. In fact, I never looked up scores prior to either purchase, but our scores are both in the mid 800s.
JamesNYC wrote:
Sat Nov 16, 2019 10:57 am
Relating to Credit Cart utilization, nearly 100% of our credit card balances are 0% balance transfers with incredibly generous terms given our high credit (For example, 0% APR with 1% balance transfer fee for 24 months).
Tip - PAY OFF the balances well before you want the mortgage to lower the credit card utilization percentage.
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curryitr
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Re: Question about applying for a mortgage with a non-working spouse

Post by curryitr » Sat Nov 16, 2019 11:09 am

For most banks a 740-750 will give you their best rate. If both of your scores are above this it won’t be a problem to have your wife on there and get her the installment loan history on her credit.

Find out what the max Debt to Income ratio is at the bank you wish to apply for. More than likely with your income you are still going to be under the max allowed for PITI+ other debts. Like others have said until you talk to some banks you’re just taking shots in the dark as to what you need or don’t need to do.

Topic Author
JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 11:25 am

Thanks all for your replies. I understand the benefit of the joint mortgage based on the response that the bank could try to call the mortgage in the event of my death. That, to me, seals the deal that I have to do joint.

Thanks.

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JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 11:41 am

Paying off debt balances as a reflex, to me, is a simplistic way to look at it. All money has an opportunity cost.

We have some manageable debts in incredibly favorable terms. Separately we have assets that are saved or invested for various purposes. There is almost no way it makes more sense to pay down debt with 0% apr when I can earn double in a HY savings account. If I look at the comparable costs of investing over the length of our debt vs saving cash to pay it to zero, we are talking thousands of dollars difference. Throughout the course of my adulthood, I have never had to pay more than 3% in weighted average APRs on any debt while investing over the past 10 years has made significant inroads on retirement savings with earning closer to 12% year over year.

So while it's great in theory to have zero debts when applying for a mortgage, I think people need to evaluate the opportunity cost of saving or investing for other things in order to achieve the initial aim.

Given where we are today, a dollar to pay down debt is a dollar less I can put toward a down payment. So I also need to consider that trade off.

If I can afford a mortgage payment in any case while having some debts and a total DTI under the required limits, I don't see why I should shy away from it. I just want to make sure my credit score gets me the best available rate. With our income I am optimistic we can get pre approved for a home at or well above the price we are looking at.

Please also understand that why we looking to move is to lower our monthly cost of living, so getting the mortgage is a bit of a means to an end to get us out of the NYC rental market.

7eight9
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Re: Question about applying for a mortgage with a non-working spouse

Post by 7eight9 » Sat Nov 16, 2019 11:44 am

U.S. Code § 1701j–3.Preemption of due-on-sale prohibitions
...
(d)Exemption of specified transfers or dispositions With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon
,,,
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
https://www.law.cornell.edu/uscode/text/12/1701j-3
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JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 11:51 am

7eight9 wrote:
Sat Nov 16, 2019 11:44 am
U.S. Code § 1701j–3.Preemption of due-on-sale prohibitions
...
(d)Exemption of specified transfers or dispositions With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon
,,,
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
https://www.law.cornell.edu/uscode/text/12/1701j-3
Thank you!

mortfree
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Re: Question about applying for a mortgage with a non-working spouse

Post by mortfree » Sat Nov 16, 2019 11:59 am

Funny. You’re worried about credit scores but are considering a loan at 10%.

Lost me on that one.

runner540
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Re: Question about applying for a mortgage with a non-working spouse

Post by runner540 » Sat Nov 16, 2019 12:14 pm

mortfree wrote:
Sat Nov 16, 2019 11:59 am
Funny. You’re worried about credit scores but are considering a loan at 10%.

Lost me on that one.
Maybe cash flow/liquidity is tighter than it should be on $300k income...otherwise OP could just pay off the cc's to reduce utilization.

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JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 12:25 pm

mortfree wrote:
Sat Nov 16, 2019 11:59 am
Funny. You’re worried about credit scores but are considering a loan at 10%.

Lost me on that one.
:sigh:

Current situation is 3%or less on all debt
Objective is to lower utilization by shifting some CC to installment loan in order to raise credit for future home purchase
Unsecured installment loans are pretty typical at 9% upwards

the decision is an if then else, not a decision that can be made in a vacuum. For example, paying debt to zero would reduce funds available for down payment. Reducing down payment funds could impact the Financials of the desired mortgage.

Holding a small amount of debt in an installment loan around 10% would be a short term action, maybe a few months to a year, while negotiating the best interest rate on (likely) a 30 year mortgage much more important and contribute much more overall to net worth.

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JamesNYC
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Re: Question about applying for a mortgage with a non-working spouse

Post by JamesNYC » Sat Nov 16, 2019 12:29 pm

runner540 wrote:
Sat Nov 16, 2019 12:14 pm
mortfree wrote:
Sat Nov 16, 2019 11:59 am
Funny. You’re worried about credit scores but are considering a loan at 10%.

Lost me on that one.
Maybe cash flow/liquidity is tighter than it should be on $300k income...otherwise OP could just pay off the cc's to reduce utilization.
I don't know what defines "tighter than is should be", but beyond what we think we need for down payment and the actual cost of a future move, plus closing costs and the rest - you are right that I don't believe I can make a 'pay debt to zero' decision with zero opportunity cost.

runner540
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Re: Question about applying for a mortgage with a non-working spouse

Post by runner540 » Sat Nov 16, 2019 12:31 pm

JamesNYC wrote:
Sat Nov 16, 2019 12:25 pm
mortfree wrote:
Sat Nov 16, 2019 11:59 am
Funny. You’re worried about credit scores but are considering a loan at 10%.

Lost me on that one.
:sigh:

Current situation is 3%or less on all debt
Objective is to lower utilization by shifting some CC to installment loan in order to raise credit for future home purchase
Unsecured installment loans are pretty typical at 9% upwards

the decision is an if then else, not a decision that can be made in a vacuum. For example, paying debt to zero would reduce funds available for down payment. Reducing down payment funds could impact the Financials of the desired mortgage.

Holding a small amount of debt in an installment loan around 10% would be a short term action, maybe a few months to a year, while negotiating the best interest rate on (likely) a 30 year mortgage much more important and contribute much more overall to net worth.
$1000 used to pay down low interest debt or to put toward down payment really doesn't move the needle on networth. You don't seem like the kind of guy to sit on a 30 yr mortgage for long - you would be trying to cash out refi and refi to a lower rate every year to optimize something. You said earlier you are confident you'll get approved with your income for the mortgage you're looking for. If you fit well within standard underwriting, I don't see the concern that would cause you to take a 10% loan to pay down CC balances at 0-3%.

That new unsecured loan will still show up as debt in your DTI and credit score...right? What's magic about the lower CC balances vs other categories? Have you considered whether the "hard pull" of your credit for the installment loan will decrease your score more than paying down the CC's?

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