Can One Spouse Get a Home Equity Loan?

Home equity loans and Home Equity Lines of Credit (HELOCs) allow homeowners to borrow against the equity accumulated in their property. These loans provide a lump sum or revolving credit, typically at lower interest rates, using the home as collateral. Many homeowners considering these options often wonder if one spouse can secure such a loan independently. The answer is not always straightforward, as it depends on various factors related to property ownership, lender requirements, and state-specific laws.

Understanding Property Ownership

The legal manner in which a home is owned by married couples significantly influences whether one spouse can apply for a home equity loan alone. If one spouse is the sole owner listed on the property deed, they may have more flexibility to apply independently. However, this flexibility often comes with specific caveats regarding marital rights.

Joint ownership structures typically require both spouses’ involvement. In a tenancy by the entirety, a common ownership form for married couples in many states, neither spouse can transfer their interest or encumber the property without the other’s consent. This structure usually necessitates both spouses signing for a home equity loan to ensure the lender’s security. Similarly, with joint tenancy with right of survivorship, where co-owners hold equal shares, lenders generally require both signatures to place a lien on the entire property. Even in a tenancy in common, where each co-owner possesses a distinct and divisible share, most lenders will still require all owners to secure a loan against the entire property, as lending against only a partial interest is uncommon.

The distinction between community property and common law states also plays a role in property ownership. In community property states, assets acquired during marriage are generally considered jointly owned by both spouses, regardless of whose name is on the deed. This often means both spouses must be involved in a home equity loan transaction. Conversely, in common law states, ownership is typically determined by whose name appears on the deed, though other marital rights may still apply.

Lender Requirements and Non-Borrowing Spouse Involvement

Even when property ownership might theoretically allow one spouse to apply, lenders often have policies that require the involvement of both spouses. Most lenders, as a standard practice for risk management, prefer or require both spouses to sign a home equity loan or HELOC agreement, especially if both reside in the home. This requirement typically applies irrespective of how the property deed is held.

State homestead laws frequently mandate the non-borrowing spouse’s signature on any mortgage or lien, even if they are not listed on the deed. These laws protect a primary residence from creditors and often necessitate the non-owning spouse’s consent to waive their homestead rights, which is a significant reason lenders require both signatures.

Lenders also consider the household’s overall financial picture. Even if only one spouse applies, the lender may assess the combined household income and debt, potentially encouraging both spouses to apply to strengthen the application or meet income requirements. The non-borrowing spouse may also need to sign documents, such as the mortgage or deed of trust, to acknowledge the lien and waive any marital property rights that could jeopardize the lender’s security.

Key Considerations for Spouses

Considering a home equity loan, whether by one or both spouses, carries significant financial implications for the entire household. Even if only one spouse takes out the loan, the shared asset—the home—is used as collateral, meaning potential default scenarios could affect both parties’ interest in the property. The financial obligation of a home equity loan extends beyond the individual borrower, impacting the couple’s collective financial stability.

While the borrowing spouse is legally responsible for the debt, the non-borrowing spouse’s interest in the home is still at risk if the loan goes into default. A lender can foreclose on the property to recover the debt if the non-borrowing spouse signed the mortgage or deed of trust. Therefore, open communication and mutual agreement between spouses are important before proceeding with a home equity loan, regardless of whose name is on the application. This collaborative approach can help prevent future financial disputes and ensure both parties understand the potential consequences. The loan can also affect the borrowing spouse’s credit score, which may subsequently impact future joint credit applications or the couple’s overall financial standing.