Your Mortgage : Spouse’s Credit Record No Reflection on Mate

Questions about bankruptcies, borrowing strategies and two confusing lending terms recently arrived in the mail.

Janet Rush of Pateros, Wash., writes: “My husband has good credit and I have bad credit due to a divorce and bankruptcy five years ago. I would like to know if we will ever be able to purchase a home of our own under these circumstances.

“Can just one spouse purchase a home with a conventional loan even if you reside in a community property state?”

Yes, your husband can apply for a loan and buy a house in his own name. The fact that you live in a community-property state doesn’t matter: He could do it in any of the 50 states.

But before you resort to this plan, you and your husband should discuss your particular situation with a few different lenders.

“Although a bankruptcy typically stays on your (credit) record for seven years, the couple won’t be automatically rejected because of it,” said Sam Lyons, senior vice president of Great Western Bank.

“If the bankruptcy is the only bad mark on Mrs. Rush’s credit record, they might still be able to get a loan in both their names, especially if they’re making a big down payment. That would be good, because it would help Mrs. Rush start re-establishing her credit record.

“If her record is just awful, though, she’d probably hurt their chance of getting a loan more than she’d help it. So, they’d be better off if her husband applied for a loan by himself.”

Jeremy Hanson of Irvine, along with his fiancee, are looking to buy their first home.

He says that they could comfortably afford the monthly payments on a $150,000 house, but could stretch their budget and handle the higher payments that would be required if they bought a $200,000 home.

“We’re leaning toward buying the more-expensive one, because we’d make more money when inflation rises,” he said. “What do you think we should do?”

Buying a $200,000 home is no guarantee that Hanson and his bride will eventually make more money than they would if they purchased a $150,000 house.

Let’s say the value of both properties went up an identical 10%. True, the couple would make $20,000 if they sold the $200,000 home and only $15,000 if they had purchased the $150,000 house.

But prices of homes don’t move in lock step with each other, even when they’re on the same street. Depending on a variety of factors, some may rise 3%, others 6%, still others 10%.

And in today’s sluggish market, values in many neighborhoods aren’t rising at all.

Perhaps a more important question that Hanson and his fiancee should ask themselves is, “How much are we willing to sacrifice to live in a nicer home?”

“A lot of younger couples, in particular, want to buy the biggest home they possibly can and wind up getting suffocated by their monthly payments,” said Bob Garman, senior vice president of Riverside-based Directors Home Loan Mortgage Corp.

“Most of their paychecks go toward their mortgage, and they don’t have any money to set aside for their retirement, save for their kids’ tuition, or just go out on the town once or twice a month.

“If these people are willing to make those kinds of sacrifices to have a nicer house, that’s fine,” Garman said. “But if the bigger payment would make them feel like they’re in a ‘drowning pool,’ I’d suggest they buy the smaller house and ‘trade up’ to a bigger one later.”

Gary Hill of Los Angeles is going to have dishpan hands.

“Is a homeowner a ‘mortgagee’ or ‘mortgagor’?,” he asks. “The dictionary says the ‘mortgagee’ is ‘a person to whom property is mortgaged,’ which makes me think we must be the ‘mortgagee.’

“Please say I’m right,” he begs. “My wife and I have a bet on this, and the loser has to do the dishes for a week!”

Sorry, but your wife wins. A mortgagee makes a loan and receives a mortgage as evidence of the debt. A mortgagor--like you--borrows money and gives the bank the mortgage.