It's tough enough to refinance or take out a mortgage when you're the only borrower. But the process gets even more complicated when you're trying to take out a mortgage with your significant other.
Whether you're married or just own the property together, your significant other's financial stability directly impacts your ability to get a loan.
The solution is to manage the process before you even fill out a single mortgage application. Here's how to iron out some of the most common issues that come up for couples borrowing together, whether they're trying to refinance or take out their first mortgage.
Problem 1: Credit issues.
Your significant other may have a few nightmarish financial issues in his or her past. If you're trying to refinance and have already applied for a mortgage together, you may already know about them. But if this is your first mortgage, it's time to have a less-than-romantic discussion of what your credit reports look like.
Job loss, illness or unpaid debt can impact your partner's credit for a long time, so be sure to pull a credit report before trying to take out a mortgage or refinance. This will give you a good idea of whether you'll be able to qualify for a new loan, or if you and your partner should rectify credit issues before trying to refinance.
Keep in mind that a "good" credit picture isn't just a credit score of 780 and no debt. Lenders will look at a full credit report of your outstanding debts, income, assets and the current value of your property to determine whether or not you qualify for a loan, and pulling your own credit report ensures that you know what the lenders are seeing.
Problem 2: One person is unemployed.
Getting good loan terms is highly dependent on income – just like it was when you took out your original mortgage. If your significant other has since become unemployed, you may not qualify for as large a loan as you would like. This is also true if your partner has unverifiable income or is now working as an independent contractor.
To avoid running afoul of newly enforced lender rules, build up your savings account before applying for your first mortgage or a refinance. This will make you a more desirable borrower for lenders who may otherwise be nervous about a drop in income.
You can also talk to your lender about having a good friend or family member co-sign on the loan. While this won't help with credit issues, it could have a positive impact on the loan terms you're offered even if income is an issue. Just be sure this move won't negatively affect your relationship with the co-signer.
Keep in mind that when you refinance, you're essentially taking out a new loan to pay off your old one. To make a refinance worth it, your new loan should have a lower interest rate, a shorter loan term, and a lower monthly payment. If you also keep a watchful eye on the costs of the refinance, you'll have what I call a home run refinance.
Problem 3: Your financial goals are different.
Whether you want to refinance your current loan terms to save money or take out a loan you can quickly pay off, you probably have certain financial goals in mind when thinking about a mortgage.
Make sure to discuss those goals with your significant other, and get on the same page before contacting your lender. If you want to pay off your mortgage quickly, you'll likely want to lock in a shorter loan term. This goal may directly conflict with your partner's goal of obtaining a lower monthly payment, since a 15-year fixed-rate mortgage may have larger payments than a 30-year fixed-rate mortgage.
Even refinance goals that appear the same may in fact be different. Both you and your partner may want lower monthly payments, but each of you might have different ideas of how that monthly savings should be used. One of you may want to put that savings into a retirement account, while the other would prefer to save that money and put it toward home improvements.
Talk with a few different lenders about the long-term goals you and your partner have for the refinance. They can help you find the loan that works best for you, and suggest ways that you can each get a little bit of what you want.
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