When buying a home, a couple may choose to have one spouse as a non-purchasing spouse—meaning their name is on the home’s title but not on the mortgage loan. This approach allows the borrowing spouse to apply for the loan based on their credit and income alone, which can improve the chances of approval and secure better loan terms.
Why Choose a Non-Purchasing Spouse?
Couples often use this strategy to avoid the impact of one spouse’s low credit score, high debt-to-income (DTI) ratio, or complicated income history on mortgage approval. Lenders typically consider the lower middle score between borrowers, so excluding a lower credit score can prevent higher interest rates or denial. Similarly, removing a spouse with high debts can help the borrowing spouse meet the lender’s DTI limits.
Impact of State Laws: Community Property vs. Common Law
It’s important to understand your state’s laws when considering this strategy. In common law states (most U.S. states), the debt of the non-purchasing spouse is not included in the mortgage application. However, in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), lenders must include the non-purchasing spouse’s debts when calculating DTI, which can affect loan eligibility.
Ownership and Responsibility
The non-purchasing spouse co-owns the home because their name is on the title, giving them legal ownership rights despite not being liable for the mortgage debt. Lenders require non-purchasing spouses to sign security instruments like the deed of trust or mortgage to protect their interest and ensure foreclosure rights cover the whole property.
Frequently Asked Questions
Can a non-purchasing spouse build credit? No, mortgage payments are not reported under their credit since they are not on the loan.
What happens in divorce? The home is a marital asset and is divided per state law, but only the borrowing spouse is responsible for the mortgage debt.
What if the borrowing spouse dies? The non-purchasing spouse generally can continue making payments under laws like the Garn-St Germain Act but should contact the lender promptly.
This strategy can help navigate complex financial situations in mortgage applications, but consulting a mortgage professional or financial advisor ensures it suits your unique circumstances.
For more mortgage-related guidance, see our Mortgage Loan Cycle article to understand the process from application to closing.
Sources:
- Consumer Financial Protection Bureau, Protecting Your Home After a Loan Transfer
- Investopedia, Community Property States
- CFPB, Mortgages and Borrower Protections
