Home equity loans allow homeowners to turn their home equity into cash that can be used for debt consolidation, home improvements, or other expenses. Married couples can tap into their home equity as co-borrowers if each meets the lender’s credit and income requirements.
Before taking out a joint home equity loan, it’s important to understand how it works and what financial responsibilities are conveyed to each borrower.
- Home equity loans allow eligible homeowners to borrow against their equity by using their home as collateral.
- Married couples can take out joint home equity loans as co-borrowers, though they’ll each need to meet the lender’s approval requirements.
- Couples who share a joint home equity loan also share legal responsibility to repay the debt.
- If one spouse has poor credit, it could make sense for the other spouse to get a home equity loan in their name only.
Home Equity Loan Basics
Equity represents the difference between what someone owes on a home and what it’s worth. A home equity loan is a type of second mortgage in which a homeowner is able to withdraw equity using their home as collateral. Home equity loans typically have fixed interest rates, and repayment terms can last from five to 30 years, depending on how the loan is structured. A home equity loan is subordinate to a first mortgage.
The amount that you can borrow with a home equity loan depends on several things, including:
- How much home equity you have (based on the outstanding mortgage balance and the home’s fair market value)
- Credit history and credit score
- Debt-to-income (DTI) ratio
As a rule, lenders prefer that you borrow no more than 80% of your home equity. A professional appraisal is usually required to determine how much the home is worth before a home equity loan is approved.
If a borrower defaults on a home equity loan, the lender could attempt to recoup the debt by initiating a foreclosure proceeding.
Joint Home Equity Loans for Couples
A joint home equity loan is a home equity loan that has two co-borrowers, who can be the homeowner and a trusted individual who is willing to co-sign on the loan but has no interest in the property. For example, a homeowner might ask a parent or sibling to co-sign. Co-borrowers for a home equity loan can also be two spouses.
Spouses who want to get a joint home equity loan will each need to meet the lender’s requirements for approval. Again, that can hinge on credit scores, income, debt, and the amount of equity that’s accumulated in the property. Taking out a home equity loan jointly means that each spouse has an equal share in the equity and an equal responsibility to repay the debt.
Whether it makes sense to get a joint home equity loan can depend on each spouse’s creditworthiness and ability to qualify for the loan. If one spouse has a much higher credit score than the other, for example, they may be able to get approved for a home equity loan by themselves.
A higher credit score can translate to a lower interest rate and more favorable loan terms in general. Couples who are primarily concerned with getting the best deal on a home equity loan may find that having the loan in just one spouse’s name is the better option. This means, however, that the spouse who is the borrower assumes sole responsibility for the loan.
Checking your credit history before applying for a home equity loan can give you an idea of the interest rates and loan terms for which you’re most likely to qualify.
Does a Spouse Need to Be a Co-Borrower on a Home Equity Loan?
A spouse does not need to be listed as the co-borrower on a home equity loan. Still, it’s important to note that, even though a spouse needn’t co-sign, they still may need to consent to the loan in writing.
Generally speaking, a lender cannot require a spouse to co-sign or act as a co-borrower for a mortgage loan if the other spouse is able to qualify based on their own creditworthiness. However, the spouse who is not listed on the loan could be required to sign documentation to make the property that’s used to secure the loan available to the lender should the borrower default.
There is a simple reason for this: The lender wants reassurance that should it be forced to foreclose on the home for default, there would be no obstacles preventing it from assuming ownership of the home. Thus, your spouse might be asked to sign a document that allows the lender to create a valid lien on the home or pass clear title to the lender.
Spouses who act as co-borrowers for a home equity loan are still responsible for paying the debt if their spouse passes away.
Does a home equity loan have to be in both names?
Couples or co-homeowners do not have to get a home equity loan in both names if one borrower is able to qualify for favorable loan terms based on their creditworthiness alone. However, lenders can require the non-borrowing spouse to sign documentation consenting to the loan. This means that if your spouse is unwilling to sign off on the loan, you may not be able to borrow against your home equity.
Can you add someone to a home equity loan?
Generally, lenders prefer that you add someone to a home equity loan when you apply for it. This way, the lender can assess the creditworthiness of both co-borrowers when determining whether to approve the loan and on what terms. If you want to add someone to your loan later, your lender may require you to refinance the home equity loan in both names.
Should both spouses be on a home equity line of credit (HELOC)?
Taking out a home equity line of credit (HELOC) instead of a home equity loan may be preferable if you want to have access to a revolving credit line rather than a lump sum. If you want to share financial responsibility for the HELOC with your spouse, it makes sense for both of you to be listed on the loan application. As with home equity loans, lenders will consider the credit histories, incomes, and debts of both spouses when making approval decisions.
The Bottom Line
Getting a home equity loan is something that you might consider if you want to borrow a lump sum of money and are comfortable with using your home as collateral. Whether you should get a joint home equity loan with your spouse can depend on how likely you are to be approved together vs. separately and the kind of loan terms for which you might qualify. Taking the time to shop around and compare the best home equity loan rates can help you find the right lender and loan to meet your needs.