The bank considers a few items when approving a mortgage:
- Your credit history. A great history/score helps, and bad one hurts. It can show up in the rate, or even may be the determining factor if the financial numbers are close.
- Your income. If you have no other debts this number is used to determine the maximum amount you can afford. For a mortgage they will also want to make sure you can afford the not just the principal and interest but also the taxes and home owners insurance.
- Your obligations. They will also look at your other debts and commitments. This will include car loans, student loans, credit card debts. It will also include mortgages on other property you own.
- The lender will also look at how the loan is structured. A healthy down payment makes them happier, a very low down payment can lead to additional costs for mortgage insurance.
I am looking to buy a first home on a short mortgage of 5-10 years.
I have good credit. My wife has no credit, but has sufficient savings
for the down payment.
A ten year mortgage will have a higher monthly payment because the the requirement of paying the mortgage in 120 payments. If you only use one income to qualify then it will have to be able to support that high of a payment. Yes the 10 year loan as a lower rate but the reduced number of payments will drive the monthly cost up.
The source of the down payment will looked at by the lender. Being able to pay 20% down will be a big help. Early on in the process they will want to know where the money is. If only one person will be on the loan, then they will want the money in an account the borrow has access to.
Would it limit how expensive of a house the bank is willing to
One income on the loan instead of two will reduce the maximum amount of the mortgage.
Are there other disadvantages, such as higher interest rate, etc.?
If you can't afford the 10 year mortgage on one income then switching to a 15,20 or 30 year mortgage to get the monthly obligation may also mean a higher interest rate.
You will have to play with the mortgage calculators to see which way the numbers work.
One benefit to having both spouses on the mortgage is that both will benefit from having that type of credit item in their file.