One Spouse on Mortgage. Drawbacks?
December 5, 2008 3:31 PM   Subscribe

This is in California, a community property state. One spouse has slightly better credit than the other. If only the good credit spouse takes out the mortgage, the interest rate will be 5.25. If good credit and less good credit spouse take out mortgage interest rate will be 5.38. The difference in monthly payment is about $50 a month. Both spouses will be on the title regardless of how the mortgage is handled. Salary will be used to pay the mortgage so any payments made will be community property. One downside of having only good credit spouse on mortgage is that if good credit spouse dies, less good credit spouse will have to refinance at a possibly higher interest rate (mortgage rates are historically low). Are there any other ramifications of having only one spouse on the mortgage?
posted by bananafish to Work & Money (5 answers total) 2 users marked this as a favorite
How much life insurance will $600/year buy? That could more than make up for the one downside.
posted by alexei at 3:41 PM on December 5, 2008 [1 favorite]

Assuming the couple has found a bank that will issue such a loan--which surprises me, as the non-mortgagee deedholder effectively has an interest that's equal, if not superior, to the bank's--then the only other issue I can think of is the issue of divorce. Yes, it's community property, but if the divorce got nasty, the non-mortgagee would be able to have wreak some good havoc in the court.

If nothing else, just to overcome the possibility of death (in the absence of a good bundle of life insurance) or possible future complications when handling the property and its mortgage later (what about a HELOC? refinancing? property improvement loan?), I'd have both parties on the deed and the mortgage. Having the not-so-good-credit spouse on the mortgage will serve to bolster that person's credit.
posted by fireoyster at 3:41 PM on December 5, 2008 [1 favorite]

Will your lender allow only one spouse on the mortgage when both are on the title? Mine wouldn't. It causes complications if the spouse on the mortgage dies or if the couple divorces.
posted by expialidocious at 3:41 PM on December 5, 2008 [1 favorite]

I live in a community property state, my husband's credit was bad (prior me). The loan officer suggested having the mortgage in just my name. We added his name to the deed at the closing. He then had to sign his interest in the property over to the mortgage company. We also had life insurance on each other to cover the outstanding balance of the mortgage.

Actually it was much easier when we divorced 10 years later. When dividing the property, I took the house. He signed his interest in the house to me.
posted by JujuB at 6:49 PM on December 5, 2008

Only downside to having the not good credit spouse on the mortgage is that said spouse cannot improve his/her credit standing by paying regularly on the mortgage. I am in this arrangement and it causes no problems whatsoever. The spouse that is not on the mortgage will still have to sign some paperwork to allow the bank to take interest in the house.
posted by crazycanuck at 8:32 PM on December 5, 2008

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