September 3, 2024 - Sonic Loans

Buying a house is a significant milestone for any couple, and it comes with a host of decisions, including how the property will be titled. While it’s common for both spouses to have their names on the property deed, some couples opt to buy a house under just one spouse’s name. Various factors can influence this decision, including financial considerations, credit issues, or personal preferences. This guide will explore the pros and cons of buying a house under one name, the legal implications, and how to navigate the process successfully.

Why Consider Buying a House Under One Name?

There are several reasons why a married couple might choose to buy a house under one spouse’s name. Here are some of the most common motivations:

Credit Score Considerations

One of the most significant factors influencing the decision to buy a house under one name is each spouse’s credit score. Suppose one spouse has a significantly higher credit score. Using only that person’s credit to qualify for a mortgage might be advantageous. This can result in a lower interest rate, saving the couple thousands of dollars over the life of the loan.

Income and Debt Levels

Mortgage lenders typically assess spouses’ incomes and debts when applying jointly for a mortgage. If one spouse has a high level of debt relative to their income, it could affect the couple’s ability to qualify for a mortgage or limit the amount they can borrow. In such cases, applying for a mortgage under the spouse’s name with lower debt levels might be more beneficial.

Asset Protection

Sometimes, couples may put the house in one spouse’s name for asset protection. This could be a consideration if one spouse works in a profession with a high risk of lawsuits or financial liabilities. By keeping the house in the other spouse’s name, the couple can protect the property from creditors in certain situations.

Loan Eligibility Programs

Specific mortgage programs are available only to individuals who meet specific criteria, such as first-time homebuyers or veterans. In some cases, only one spouse may qualify for these programs, making it necessary to purchase the home under that spouse’s name to take advantage of unique financing options or lower down payment requirements.

Legal Implications of Buying a House Under One Name

While there are valid reasons for buying a house under one spouse’s name, it’s crucial to understand the legal implications of this decision. Property ownership and rights can vary significantly depending on your state and whether your state follows community property or common law principles.

Community Property States

In community property states, any property acquired during the marriage is typically considered joint property, regardless of whose name is on the deed. Nine community property states exist in the U.S., including California, Texas, and Arizona. In these states, both spouses have equal ownership rights to the property, even if only one name is on the title.

Common Law States

Standard law states that the property belongs to the person whose name is on the title. This means that if a couple buys a house under one spouse’s name, that spouse is considered the sole owner of the property. However, this does not mean that the other spouse has no rights. For example, if the couple divorces, the non-titled spouse may still be entitled to a share of the property’s value, mainly if marital funds were used to purchase or maintain the property.

Estate Planning Considerations

When a house is purchased under one spouse’s name, it’s essential to consider what will happen to the property if that spouse passes away. With proper estate planning, the surviving spouse may avoid challenges in inheriting the property or may need to go through probate. Couples can use tools like a will, trust, or joint tenancy with the right of survivorship to ensure that the property is transferred smoothly to the surviving spouse.

The Process of Buying a House Under One Name

If you’ve decided that buying a house under one spouse’s name is the best option for your situation, here are the steps to follow:

Evaluate Financials and Credit

The first step is to evaluate both spouses’ financial situations. Determine which spouse has the better credit score and lower debt-to-income ratio. This spouse will likely be the better candidate for the mortgage application.

Apply for a Mortgage

The spouse with a more robust financial profile should apply for the mortgage in their name. This involves providing the lender with financial documentation, such as pay stubs, tax returns, and bank statements. The lender will assess the spouse’s ability to repay the loan based on their income, credit history, and debts.

Title the Property

Once the mortgage is approved, the property can be titled in the name of the spouse who applied for the loan. It’s essential to discuss with a real estate attorney or title company how you want to structure the title to ensure that it aligns with your long-term goals and provides adequate protection for both spouses.

Consider Legal Protections for the Non-Titled Spouse

Even if the house is in one spouse’s name, legal agreements can protect the other. For example, a prenuptial or postnuptial agreement can outline how the property will be divided in the event of a divorce. Alternatively, the titled spouse can add the non-titled spouse to the deed later or set up a trust to ensure the surviving spouse inherits the property.

Review and Update Estate Planning Documents

Reviewing and updating estate planning documents is essential to avoid complications in the event of death. This may include creating a will addressing the property, setting up a living trust, or adding a survivorship clause to the deed.

Pros and Cons of Buying a House Under One Name

Pros:

Potential for Better Mortgage Terms: The couple may secure a lower interest rate by applying for a mortgage under the spouse with a better credit score.
Simplified Application Process: Fewer documents and less complexity may be involved when only one spouse applies for the mortgage.
Asset Protection: In certain situations, titling the house in one spouse’s name can protect it from creditors or legal judgments against the other spouse.

Cons:

Risk to Non-Titled Spouse: The spouse whose name is not on the title may have limited legal rights to the property.
Complications in Divorce: If the couple divorces, the non-titled spouse may have to prove their financial contribution to claim a share of the property.
Estate Planning Challenges: With proper estate planning, the non-titled spouse may avoid difficulties in inheriting the property if the titled spouse passes away.

Conclusion

Buying a house under one spouse’s name is a decision that should be made carefully, considering the financial, legal, and personal implications. While there can be advantages, such as securing better mortgage terms or protecting assets, it’s essential to understand the potential risks and take steps to protect both spouses’ interests. Consulting with a real estate attorney and a financial advisor can help ensure that the decision aligns with your long-term goals and provides peace of mind for both partners.