Can I Use My Spouse’s Income for a Mortgage Loan?

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    When applying for a home mortgage loan, lenders will want to understand your full financial picture – and that often includes taking a look at your spouse or partner’s income as well.

    But can you really use your spouse’s income to qualify for a mortgage even if you file taxes separately? In this article, I will go over the nuances of including a spouse or partner’s income when applying for a home loan.

    Let’s get started.

    Joint vs. Individual Mortgage Applications

    The first thing to understand is whether you plan to apply for your mortgage jointly with your spouse or apply as an individual borrower.

    In most cases, married couples apply for home loans jointly since it allows both incomes to be considered in the underwriting process. However, it is possible in some situations to apply as an individual even if married.

    When applying jointly, both borrowers will be listed on the loan documents and mortgage note. This means both individuals are then jointly and severally liable, meaning the lender can collect payment from either borrower if needed.

    Joint applications are fairly straightforward for lenders to underwrite since they simply review both credit reports and incomes to determine eligibility.

    On the other hand, applying as an individual means only one spouse is formally applying for the loan and will be solely responsible for repayment.

    In these cases, including a spouse’s income in the underwriting process becomes a bit more nuanced. We’ll explore the specific considerations next.

    Including Spousal Income on an Individual Application

    For married couples filing taxes jointly, including a spouse’s income on an individual mortgage application is usually not an issue for lenders. They will simply refer to tax returns listing both incomes to qualify the applicant.

    However, things get trickier when filing taxes separately. In these situations, lenders may still consider spousal income, but there are additional documentation requirements:

    Tax Returns: Lenders will need at least the last two years of separate federal tax returns for both borrowers to review incomes.

    Sufficient History: Spousal income can only be counted if it has been received consistently for at least two continuous uninterrupted years. Short-term or seasonal jobs may not qualify.

    Stable Employment: Lenders want to see stable, predictable income sources they can reliably factor into debt-to-income ratios. Freelance or commission-based work involves more risk.

    Legal Residence: The spouse providing income must permanently reside with the applicant and intend to do so for the foreseeable future. Temporary living situations won’t suffice.

    Spousal Letter: A letter from the non-applicant spouse consenting to their information being used is also common. This acknowledges awareness of the transaction.

    Provided all documentation requirements are met, a lender may consider and blend a spouse’s consistent income with the applicant’s to determine loan eligibility and terms. However, there are no guarantees – underwriters have discretion here.

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    What Happens if Your Spouse Isn’t Working?

    For couples just starting out or dealing with job changes, it’s not uncommon for one spouse to temporarily not be employed. In these cases, can you still use their expected future income potential when qualifying for a mortgage loan?

    Unfortunately, the general rule is no – most lenders will only consider stable income that has already been received over the past two years. Speculating about a spouse taking a new job or going back to work isn’t something underwriters are comfortable relying on.

    There is one exception – if the non-working spouse was employed within the last 6 months and provides acceptable documentation of impending job reinstatement within the next 60-90 days, then lenders may make allowances on a case-by-case basis. However, this is still a risky proposition from their perspective.

    A safer bet if one spouse isn’t presently employed is usually to qualify using just the current working income. You can reapply once both incomes are established again, and refinance later if desired. The key is proving steady sources lenders have high confidence in when underwriting your loan.

    Factoring Child Support or Alimony into Mortgage Qualification

    For divorced or separated spouses, including support payments like child support or alimony as part of your income during the mortgage application process may also be possible under the right conditions. Here are the general guidelines lenders follow:

    Consistent Receipt: A history of consistent, regular payments for at least 12 months is required via bank statements, divorce decree, or other documentation.

    Court-Ordered: Payments must be court-ordered or part of a legally binding separation agreement through the divorce. Voluntary support won’t qualify.

    Reliable Termination Date: Alimony that will end within 3 years usually cannot be counted by lenders.

    Supporting Documentation: Tax returns, payment records, and a copy of the divorce decree formalizing amounts are standard requirements.

    Provided all factors check out, most lenders will typically qualify child support or alimony at a debt coverage ratio of around 80% of documented support amounts received. This still leaves some cushion but acknowledges their reliability as ongoing income sources.

    Discuss Your Full Financial Picture with a Mortgage Professional

    As you can see, including a spouse or partner’s income in the home loan qualification process involves various nuances depending on individual circumstances.

    Joint applications are usually straightforward while individual applications require specific documentation of separate finances. Rather than trying to navigate the details alone, connecting with a knowledgeable mortgage professional is highly recommended.

    An experienced loan officer can review your full financial picture, tax filing statuses, current employment situations, and other pertinent factors to provide clear guidance on the best strategy.

    They’ll work with you to gather all necessary paperwork and coordinate with the lender’s underwriters to maximize approval odds. And don’t hesitate to ask about alternative options like having a co-signer if including a spouse’s income may pose challenges.

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    With prudent planning and guidance from a trustworthy advisor, many couples find creative ways to leverage their combined household resources towards homeownership goals, even in complex family financial scenarios.

    Putting Documentation Together Correctly is Critical

    As with any part of the home loan application process, getting the proper documentation together correctly is a key factor in demonstrating eligibility to lenders. When a spouse’s income is part of the qualification equation, a well-organized packet of verification materials becomes even more critical.

    Make sure to take time upfront finalizing the following critical documents when including a spouse:

    Two Years Tax Returns: Provide both joint and separate returns as needed based on filing status. Ensure forms are signed and all schedules/details are attached.

    Recent Pay Stubs: At least one full month of the most recent/current pay stubs for both applicants clearly showing year-to-date figures.

    W-2s: The last two years of W-2 forms itemizing income, taxes withheld, etc.

    1099s/K-1s: For other income types like self-employment, dividends/interest, provide appropriate verifying forms.

    Asset Statements: Gather 60 days of bank/investment/retirement/stocks/savings records of all balances.

    Spousal Letter: Obtain approval letter from non-applicant spouse detailing permission for information usage.

    Employment Verification: Offer letter, third party verification, or contact info if sending out requests.

    Alimony/Support Records: Decree/agreement and at least 12 months payments history if using for qualification.

    Carefully proof everything, make sure all names/amounts match perfectly across forms, and highlight key figures lenders will reference. Then send cleanly organized with an easy-to-follow cover sheet.

    How Co-Borrowers or Co-Signers Can Help

    For some couples still navigating unique financial situations, simply being able to include a spouse’s income may not completely solve mortgage qualification challenges.

    In these cases, alternative tactics such as adding a co-borrower or co-signer to the loan application may potentially help expand eligibility and approval options.

    Co-borrowers have their name on the loan and title just like primary applicants. They share full responsibility for repayment. However, co-borrower’s excellent individual financial credentials like high credit scores and incomes can boost approval chances by leveraging their independent qualifications.

    Co-signers, on the other hand, do not have ownership stake in the property but do assume liability if the primary borrowers default.

    Adding a parent, family member or other individual to cosign establishes another backup source of funds for lenders should issues arise.

    Some benefits co-borrowers or co-signers may provide include:

    • Augmenting weaker credit profiles to meet score/DTI requirements.
    • Bridging gaps where primary applicants’ income falls short of benchmarks.
    • Helping compensate for insufficient down payment or reserves shortfalls.

    Of course, co-borrowers and cosigners agree to take on considerable commitment too, so it’s a decision that must be made carefully between all involved parties and not taken lightly.

    Important Factors to Consider When Adding a Co-Borrower or Co-Signer

    While having a co-borrower or co-signer on a mortgage application can help expand approval options, it is still a major undertaking that should not be rushed into without full understanding of responsibilities and risks. Here are some especially important considerations:

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    Creditor Rights – As a co-borrower, the lender has equal rights to collect repayment from them as the primary borrowers. Co-signers are also still on the hook if defaults occur.

    Credit Impact – Both co-borrower and co-signer names will appear on credit reports and loan documents. Any late payments will impact their credit profiles as well.

    Foreclosure Risk – If the loan goes into foreclosure proceedings down the line, it puts co-borrower/co-signer assets like their own home at risk of being seized.

    Long-Term Liability – Obligations extend for the entire life of the loan, which could be 15-30 years. Divorce or falling out with borrowers does not release one from legal commitment.

    Decision Making Exclusion – Once the loan closes, co-borrowers and co-signers relinquish any say over financial decisions involving the property or repayment terms.

    For these reasons, prospective co-borrowers and co-signers must truly understand the gravity of their role and feel completely comfortable taking it on voluntarily without reservation. Lenders also expect solid trusting relationships between all parties.

    It is also highly recommended that legal counsel review documentation beforehand to ensure rights are fully comprehended and protected. With such heavy responsibilities in the balance, seeking guidance is well worth the investment.

    Alternative Tactics When Including a Spouse May Not Work

    If adding a spouse/partner’s income, utilizing a co-borrower, or obtaining a co-signer still does not clear all underwriting hurdles, a few other options sometimes available include:

    Higher Down Payment – Putting down 25% or more allows some flexibility on weaker credit/DTI profiles on a conventional loan.

    Subordinate Financing – Second mortgages from family can help boost down payment and waive mortgage insurance.

    Portfolio Lenders – Private/portfolio loan programs may evaluate borrowers individually rather than relying solely on risk-based scores/ratios.

    USDA/VA/FHA Loans – Government-backed loans that insure portions of the loan provide wider access but also have ongoing MIP costs.

    Seek Out Non-QM Options – Some non-conforming “Non-QM” loans review overall applicant qualifications holistically rather than stick strictly to one-size-fits-all programs.

    Wait to Improve Profile – If just barely missing out, making small adjustments and reapplying later can be all that’s needed once over the edge of guidelines.

    Exhausting all possibilities with a knowledgeable mortgage professional is wise before giving up on a home buying goal that may still be realistic with some flexibility changes. Determination and creativity often lead borrowers down the right path.

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