With mortgage rates at an extremely low level, you and your spouse might be considering taking the plunge and buying a home. But what happens when you apply for a mortgage jointly and one credit score is much lower than the other?
You’ll find out that you both need to have good credit to get an affordable mortgage rate, and if your spouse’s credit score is poor that could be a problem. Here is what likely will happen if you are seeking a mortgage and your credit score is strong, but your partner’s isn’t.
Lenders will fixate on the lower of the two scores
You might think that if your credit is great, but your spouse’s isn’t your mortgage lender simply will average your two scores and go with that number. Unfortunately, that’s not how it works. Although your solid credit could help make up for a spouse’s poor credit somewhat, your lender will concentrate on the lower of the two scores.
For instance, if your credit score is a 790 (which is considered excellent) and your partner’s score is a less-than-stellar 620 (typically the minimum required for a mortgage), you might be approved for a home loan. However, you probably won’t be offered the most competitive rate. Meanwhile, if your score is a 790 but your spouse has a 540, that super-low score could potentially ruin your chances of getting approved at all, despite your great credit.
You’ll be encouraged to apply for a mortgage solo if your spouse has bad credit
If a huge gap exists between your strong credit score and your spouse’s weak one, a solution could be to apply for a mortgage on your own rather than jointly with your spouse. But this only will work if you earn enough money to cover your housing costs by yourself. In addition to your credit score, your lender will examine your existing income to determine if it’s high enough to qualify for the loan you’re seeking.
If your income isn’t high enough to get a mortgage and you need to factor in your spouse’s income, then you’ll have to apply for a joint loan. That’s when your partner’s poor credit could be an issue, and unfortunately, you can’t count your spouse’s income on your application without his or her credit score.
You can help improve your spouse’s credit
If your spouse’s credit score needs work, try helping to bring up that number and then apply for a home loan. The first order of business is to have your spouse get a copy of his or her credit report to see what it looks like. If there are any errors on that report that work against your partner, correcting them could boost his or her score quickly.
Next, find out why your spouse’s score is so low. Is it because of a late payment history or too much credit card debt? If there are delinquencies on your spouse’s credit record, get current on those payments and then pay on time going forward. Paying off a large chunk of existing debt also could improve your spouse’s score.
