Issues Relating to One Spouse Qualifying For A Loan On Their Own

| | Comments (0)
"I am married but want to refinance my house only in my name. What do I have to do?"
This is actually pretty easy, and there are at least two ways to potentially accomplish this, depending upon lender policy and the law in your area.

Most lenders policies require the property to be titled in a compatible manner to the loan. Some few do allow the spouse to be on title and not a party to the loan, in which case they will be required to sign the Trust Deed, although not the Note. Most lenders, however, will require that if you are the only one on the loan, the property be titled in your name exclusively. So your spouse will be required to sign a quitclaim to "Jenny Jones, a married woman as her sole and separate property" (Or "John Jones, a married man as his sole and separate property). If you don't like the title being this way, that's fine and don't sweat it. You can quitclaim it back to "John and Jenny Jones, husband and wife as joint tenants with rights of survivorship" as soon as the loan records. What matters is that the people agreeing to the loan, as of the moment the Trust Deed comes into effect, is reflected in the official title of the property.

For those intelligent individuals whose property is in living trusts, this is also a common feature of getting a loan on the property. The lender will usually require it be quit-claimed from "John and Jenny Jones, trustees of the Jones Family Living Trust" to either the sole individual who qualified for the loan, as in the previous paragraph, or to "John and Jenny Jones, husband and wife as joint tenants with rights of survivorship."

All of that is the easy part. Now comes the hard part. If one spouse wants to be the only one on the loan, then they must qualify on their own. Only their income may be used. However, since most debts in a marriage are in the names of both partners, typically they are going to going to be charged for most debts on their qualification sheets. This really is no big deal if that particular spouse is earning all of the money anyway, but in most cases these days, both spouses are working, and they want to buy the biggest home they can, so it can be difficult to qualify them for that home based upon the income of only one spouse. Here's a typical scenario: He makes $5600 per month, she makes $5000. They have two $400 per month car payments and $120 per month in credit card minimum payments. But he has rotten credit, so they are hoping to secure a loan on better terms. By A paper full documentation guidelines, she only qualifies for a PITI payment of $1330 ($5000 times 45%, minus $920), which might get a one bedroom condo in a not so hot area of town. So then they have to go stated income in order to qualify for the loan on the home they really want. As a couple they qualify for payments of $3850 ($10,600 times 45%, minus $920), which will get a decent single family residence in an okay area of town. You, the readers, can guess which of the two properties the average couple in this situation is going to shop for. Unfortunately, many times her profession is not one where the lender will believes she makes twice what she really does without verification. This is a real issue, especially if they went and got a prequalification from someone who figured both of their incomes in the equation, so here they are with a purchase agreement and they can't qualify like they thought they could. This is one reason I've learned never to trust someone else's prequalification of a buyer, because in this situation, the only way to make it happen is to put John, with his rotten credit, on the loan. Because he makes more money than Jenny, he will be the primary borrower, and so the loan will be based upon John's bad credit history, not Jenny's above average FICO. There are ways to potentially get around this, but sometimes they work and sometimes they don't, at least in the sense of getting John and Jenny a better rate on their loan, or of qualifying them to get a loan at all. Better to get John's credit score up where he will qualify for a good loan beforehand, of course, but usually these folks want a loan now so they can get this home they've already signed a purchase contract on. The ability to improve credit scores in a short period of time is limited, and it's even more limited if John and Jenny are short on cash, which is usually the case.

These can all be issues with the spouse who makes less money, also. Reverse the incomes, so that John, with his bad credit, makes $5000 per month and Jenny, with her good credit, makes $5600. So at least Jenny is primary on the loan, now, but most people are not in professions where the lender will believe they make almost twice what they really do, so stated income A paper doesn't fly, and John and Jenny have to go sub-prime because if you put him on the loan, both spouses must qualify A paper and John doesn't. Sub-prime means higher rates and a pre-payment penalty, unless you buy off the prepayment penalty with an even higher rate.

Now, in point of fact many borrowers these days are ones that have settled upon a property before they even considered a loan, and are determined to get that property no matter what they have to do. Alternatively, they may have talked to someone about loans who gave them a budget which was in fact accurate, but they liked this property so much that they are utterly ignoring that budget. Such people are going to end up with bad loans. They want more house than they can really afford, and they want it now. I can get the loan for them, any competent loan officer can get it for them, but there will be consequences down the road, because there are still those pesky payments they have to make (or negative amortization that builds up. Or both). A loan you cannot afford is a course for disaster, and the longer you're on it, the worse the disaster gets.

But so long as a couple is qualifying for a loan where they really can make the payments, it's all okay. The one thing that bites a fair number of people is divorce, where one ex-spouse figures that because he (or she) qualified all by themselves so they should be able to make the payments all by themselves. But the loan officer used stated income without telling them, and once that other income is gone, it turns out that they can't make the payments. Not only can they not make the payments, they cannot qualify to refinance now. Typically, most people live in denial about this for way too long, ruining their credit to where they can no longer qualify for the loan on the lesser property they would have been able to get if they had done the smart thing in the first place.

So one spouse qualifying for a loan on their own has some real issues to be aware of, and that will turn and bite you if you're not careful enough.

Caveat Emptor.

Categories

Delicious Bookmark this on Delicious StumbleUpon Toolbar Stumble It!
Please be civil. Avoid profanity - I will delete the vast majority of it, usually by deleting the entire comment. To avoid comment spam, a comments account is required. They are freely available, and you can post comments immediately. Alternatively, you may use your Type Key registration, or sign up for one (They work at most Movable Type sites). All comments made are licensed to the site, but the fact that a comment has been allowed to remain should not be taken as an endorsement from me or the site. There is no point in attempting to foster discussion if only my own viewpoint is to be permitted. If you believe you see something damaging to you or some third party, I will most likely delete it upon request.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.

Leave a comment

Copyright 2005-2017 Dan Melson. All Rights Reserved

 



Buy My Science Fiction Novels!
Dan Melson Author Page

The Man From Empire
Man From Empire Cover

A Guardian From Earth
Guardian From Earth Cover

Empire and Earth
Empire and Earth Cover

Working The Trenches
Working The Trenches Cover

Preparing The Ground
Preparing The Ground Cover

Building the People
Building the People Cover

The Book on Mortgages Everyone Should Have!
What Consumers Need To Know About Mortgages
What Consumers Need To Know About Mortgages Cover

The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
What Consumers Need To Know About Buying Real Estate Cover

Dan Melson's San Diego Real Estate and Mortgage Website

↑ Grab this Headline Animator

About this Entry

This page contains a single entry by Dan Melson published on February 3, 2008 7:00 AM.

What Pre-Approval Should Mean was the previous entry in this blog.

What Fees Can You Recover If Your Loan Is Denied? is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.



What I Do

Read My Promise To All My Clients

My Office Contact Information

There are no better agents in San Diego County!

There are no better loan officers in California!

Ask for your free consultation today!

**********
Favorite Loans Available Now

My Listings

Hot Properties!
Email me! danmelson(at)danmelson(dot)com
**********
I want your business!
Unhappy with your loan?
Can't afford your payments?
I can help!
---
Want to buy smart?
Want to sell smart?
I can do it!
---
Bankruptcy?
Foreclosure?
In Default?
Let Me Help!
---
Want to buy properties in distress?
(defaults, foreclosures and REOs)
Ask Me How!
---
Bad Credit?
No Down Payment?
Ask Me What I Can Do!
---
1031 Exchanges
Forward, Reverse, or Partial
I Get It Done!
---
Should I Buy Now?
Should I Sell Now?
Would It Help Me to Refinance?
I'll tell you if the answer is "No"
I'll help you if the answer is "Yes"
---
Contact me:
My Office

Want San Diego MLS?

Here's my office's link to San Diego MLS

Enter your email address:

Delivered by FeedBurner

Subscribe with Bloglines Add to Technorati Favorites

Not in San Diego?

My other site is here
Powered by Movable Type 4.21-en