What to Do if Your Spouse's Debt Is Killing Your Homeownership Dreams

by Christy Bieber | Updated July 19, 2021 - First published on Feb. 4, 2021

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Too much debt is a detriment when buying a home. So how can you cope if your spouse has a high debt load?

For many couples, buying a house is a priority. After all, marriage is a big commitment that may inspire you to set down roots and perhaps start a family. To do either of those things, you may want to buy a place of your own.

Unfortunately, when you want to buy a house as a couple, the bank is going to evaluate both of your financial situations. And if your spouse brought a lot of debt into the marriage, that baggage could preclude you from getting approved for a home loan. Here's why that might be a problem and what you can do if it happens.

Your spouse's obligations could affect your debt-to-income ratio

The reason your spouse's debt could become an issue when you buy a home is because many lenders have a strict cut-off point with regard to your debt-to-income ratio (DTI).

Most want a front-end ratio of 28% or less. The front-end ratio refers to the amount of your income that will be spent on housing costs (including your mortgage principal and interest as well as property taxes and insurance). And most want a back-end ratio of 36% or less. The back-end ratio is the percentage of your income that goes toward all your debt payments, including your mortgage loan.

If your spouse has a lot of debt, you may be above these thresholds, which could affect your ability to secure a mortgage loan.

Here are your options if your spouse owes too much for you to buy a home

If you apply for a joint mortgage and your debt-to-income ratio is too high due to your spouse's debt, you have four primary options:

1. Qualify for a home loan on your own

If you can qualify for a home loan on your own, without your spouse being a co-applicant, this is the easiest approach. When you apply for the loan as a single applicant, your lender will only care about your financial credentials. So your spouse’s debt won't matter at all.

2. Look into other loan types

Some loans have more relaxed rules than others when it comes to your DTI. For example, with a Federal Housing Administration (FHA) loan, you could potentially have a debt-to-income ratio as high as 50% and still qualify.

If you were turned down by one lender because of your spouse's debt, don't assume that's going to be the case for every loan. Shop around with different mortgage providers and look into government-guaranteed loans in addition to conventional ones to see if you get a better result.

3. Make a debt payoff or paydown plan

One of the most obvious ways to deal with a DTI that's too high is to lower your debt payments by reducing the amount you owe. Of course, this can take time and won't be an ideal solution if you're hoping to buy a home ASAP.

You have a number of different options for paying down debt. One is a debt snowball approach. This involves paying as much extra as possible toward your loan with the lowest balance while paying just the minimum amount on your other loans. As each debt is paid off, you'd move on to the debt with the next lowest balance. This approach may be best in this situation, as each debt you eliminate gets rid of one monthly payment that counts against your DTI.

Paying down debt could improve both your debt-to-income ratio and your credit score. This could make it much easier to qualify for a competitive loan. Plus, when your spouse’s debt is paid, you’ll have more money to cover housing costs and accomplish other financial goals.

4. Scale down your expectations for homeownership

Finally, your last option is to buy a smaller, less expensive home. That way, you won't have to borrow as much money. If you can reduce the size of your mortgage payments, you may still meet your mortgage lender's requirements to borrow even when taking your spouse's debt into account.

Which option is right for you?

Ultimately, you and your partner are going to have to decide which approach is the best one when you're hoping to become homeowners despite owing a lot already. The important thing is to make a financial decision that works for you both and allows you to work together effectively to achieve your dream of buying a place of your own.

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