Does a Non-Working Spouse's Credit Affect a Home Loan?

Marriage doesn't require that both spouses apply for loans together, although they often want to do so with large purchases such as a home. If one spouse has no job or negligible or bad credit, it often makes more sense for the other to apply for a home loan on their own. The option isn't without some pitfalls, however, and if spouses do elect to apply together, they could end up paying a price for that as well.

The Effect of Credit Scores

If your spouse's credit is iffy in addition to being unemployed, this will probably sabotage your chances for financing if you apply for a home loan together. No matter how good your own credit might be, and even if you're the primary breadwinner, mortgage lenders often look to the lower of a couple's two individual credit scores when approving a loan. If your spouse's credit score is only 560, this might prevent you from qualifying even though your income will be paying the mortgage and your own score is 790.

The same applies if your spouse has no credit score at all because all marital loans have historically been in your name. Lenders will look to their lack of credit history when determining financing.

The Effect of Income

Another scenario is that your spouse is unemployed but her credit score is stellar. Conversely, this probably wouldn't hurt your chances of qualifying for a joint loan, provided your own credit score is good as well. If you both have top-notch scores, the lender will go with the lowest, but there may not be much difference between the two.

However, lenders base the amount of the loan in part on your debt-to-income ratio, the comparison between what you earn and what you owe. You might qualify for less of a mortgage if only one of you earns income than if both you and your spouse had earnings, particularly if you're paying other debt off as well.

The Effect on Interest Rate

The difference between applying for a home loan in your sole name or applying jointly can have a dramatic effect on your interest rate if your spouse's credit is not good. Although their lack of income shouldn't affect the interest rate, a subpar credit score will. The lower their score, the higher rate you'll pay. If they have no income anyway, you might save yourself a bundle over the long term by applying on your own and leaving their score out of the equation, assuming you have good credit.

Some Options

If your spouse's lack of employment is temporary, it might be worth waiting a while to refinance or buy a new home. If they secure a new job and you both have good credit scores, you'll get a good interest rate and you should also qualify for a larger mortgage with more income.

If your spouse historically hasn't worked because they've opted to stay home and care for your family, and if they have no credit history at all but really wants to be on the loan, you can take steps to create a history and score for them before you apply.

Even if they're not working, they might still be able to qualify for a secured credit card which they can begin using and paying off regularly to establish a good credit track record. You can also take out joint cards or loans together – such as for an automobile – and your payment history would appear on their credit report.