My Partner Has Poor Credit ... Is It Still Possible to Get a Mortgage?

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Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI
https://activerain.com/droplet/5nGh

 

My Partner Has Poor Credit ...

Is It Still Possible to Get a Mortgage?

 

The topic of credit is an important one when it comes time to prepare and apply for a mortgage.  Questions surrounding every facet of credit arise during my initial conversations with prospective borrowers.

 

The following is just a small sample of the credit topics, info, details, and questions that I often cover with mortgage hopefuls:

  • The best ways to establish credit, if no credit scores or history has been established
  • The best ways to build additional credit, credit history, credit scores (how scores affect interest rates/underwriting/loan approval, etc), if minimal credit has been established and is reporting
  • How to improve credit
  • Credit Scores and how they affect the availability of mortgage program options
  • Credit Scores and how they affect interest rates
  • Methods to conduct credit repair
  • How to eliminate credit accounts (and lower levels of debt/debt ratios)  

 

It's only right that the topic of credit receives this type of time, attention, and scrutiny.  It's definitely warranted, as credit is and remains a key focus throughout the entire loan process.  

From initial contact with a loan officer through to loan closing itself, it remains of utmost importance.  And that focus is on every individual that hopes to finance too, as every borrower brings their own credit history and individual credit scores to the mortgage process.  

Perhaps the best way I can explain it is via an analogy ...  

Each individual borrower has their own credit history.  Each borrower has its own unique data, information, and credit scores that make up their personal "financial DNA".  

Your physical DNA contains your personal and unique genetic code.  For that reason, doctors can sometimes use DNA/test results to predict a person's future health status or the likelihood of their developing certain health conditions.

Your credit/credit scores serve as your financial DNA and serve much the same role for mortgage lenders ...  

Credit scores certainly reflect past financial occurrences, decisions, and actions.  But lenders also use them as a tool to predict the likelihood of a mortgage applicant making future mortgage payments in a consistent and timely manner.

For those hoping to obtain a mortgage as a married couple or in a co-borrower scenario, their co-borrower's credit scores (their financial DNA) also come into play.  That fact has the potential to introduce both pros and cons to any mortgage process moving forward.  

In those instances where co-borrowing applicants have stronger/higher credit scores, there are typically few issues encountered.  Most make the decision to move forward with the mortgage application reflecting both buyer/applicants on the mortgage.

But what if one spouse or co-borrower has high scores and the other has low/poor scores?    

 

First, it's important to know just how mortgage lenders obtain their information regarding applicants' credit history and credit scores ...  

In most instances, mortgage lenders assess credit scores reported from the 3 major credit bureaus.  

Those bureaus are:  Experian, TransUnion, and Equifax.  

For the purposes of loan approval:

  • Mortgage Lenders use the middle score from each applicant 
  • If more than one Borrower is making application, they then utilize the LOWER of the middle scores to determine a loan interest rate 


Depending on the weaker middle score being reported, loan approval itself can be in jeopardy at this juncture.  

From past experience, I can tell you that this scenario can prove tricky.  This is especially true if the co-borrowing applicants have not had a previous conversation regarding their finances, spending habits, credit scores, and credit history.  Surprises of this kind are typically unwelcome.

But once the truth is known, what comes next?  How is it best to proceed?

I can't stress this enough.  There is no one singular definitive answer to these 2 questions.  What is "best" for one applicant, is not always "best" for another.  

Each mortgage applicant must find their own "best" answers and personal path on which to proceed.  Decisions must be based on their personal financial facts, needs, and desires.

So once again the question is asked:  How can applicants proceed if that proves to be the situation encountered?

The first thing anyone should do is have an in-depth discussion with their loan officer regarding all the options they have at their disposal.  That is critically important. 

One of those options available may be one where the stronger mortgage applicant chooses to seek mortgage qualification based on their credit scores alone.  In other words, the stronger candidate makes mortgage application leaving the lower-credit score applicant off.  

It's important that anyone considering this action knows the following prior to making their final decision:

  • Lenders will NOT be able to use the income of the partner/spouse/co-borrower with low credit scores during underwriting and while seeking mortgage approval
  • Because the income of the non-borrowing partner/spouse/co-borrower will not be considered for mortgage purposes, home affordability may be affected
  • For the same reason, the amount of money that will/can be approved for mortgage will be limited to what the lone applicant can be approved for 
  • Downpayment CAN come from the bank account of the partner/spouse/co-borrower not on the loan.  They also can come from a joint bank account held with that person
  • Closing Cost Funds CAN come from the bank account of the partner/spouse/co-borrower not on the loan.  They also can come from a joint bank account held with that person
  • The partner/spouse/co-borrower can also contribute via gift monies.  A Gift Letter would need to be completed and submitted to the lender in this case
  • The non-borrowing partner/spouse/co-borrower can still hold homeownership rights.  That ownership will be reflected in the title of the property 


As you can see, there's a lot to consider prior to making a final decision regarding this action.  So it's important to consult and work with a Loan Officer that has knowledge and experience in this financing scenario.  

Using the analogy cited earlier, knowing all there is to know about your financial DNA and your credit health ... prior to beginning a home buying and financing search ... proves extremely beneficial later.  

Yes, it's possible to get a mortgage when your partner has poor credit.  But scenarios such as this one are why I advocate so strongly for early proactive action when considering either.  

First, there are no surprises at crunch time ...  when you hope to view homes and make mortgage application.  And you strengthen your position, both when making an offer on your dream home and when financing it.  

You simplify the financing process for yourself.  You make it easier and quicken the process.  And that can result in a real savings of time, stress, and possibly money too.

Talk to a Lender today ...

 

 

* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicagoland ... IL or WI?

Contact me today!  I'll put my 40 years of mortgage experience and expertise to work on your behalf. I'm easily found at:


 
Gene Mundt
 
Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI #216987
 
American Portfolio Mortgage Corp
NMLS #175656
 
 
Direct: 815.524.2280
Cell: 708.921.6331
eFax: 815.524.2281
 
 
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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

 

Your Referrals & Testimonials are Always Greatly Appreciated! 

 

 

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Show All Comments
Rainmaker
2,285,038
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi - I can have both pro and con as you say.  Sometimes one partner has to bear the entire mortgage.

Aug 07, 2020 12:23 PM #1
Rainmaker
3,469,723
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Gene loved this post funny when we bought our house we used Diane's credit so the joke is I am just the Tenant:))Endre

Aug 07, 2020 10:41 PM #2
Ambassador
2,101,554
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

We often see a lender only want one of the spouses, or partners on the loan. In fact, that just happened for my son and his wife. Her credit wasn't as strong as his, so they went with Nate. 

Aug 08, 2020 07:27 AM #3
Rainmaker
2,897,871
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

It’s a very common tail in this life to have one of the two you have bad credit but sometimes teamwork makes the dream work

Aug 22, 2020 09:39 PM #4
Rainmaker
2,897,871
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Sometimes that does happen and sometimes it can work for the better but it all depends on what that lender seems to want in the short term or even in the longer-term, Debb Janes EcoBroker and Bernie Stea JD

Aug 22, 2020 09:41 PM #5
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Rainmaker
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Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

708.921.6331 - 40+ yrs experience
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