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 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 ...
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