Ready to buy a home with the one you love? Got good credit? What about your sweetheart? If not, getting a mortgage may be difficult, not to mention a strain on your relationship. First, you must understand how mortgage lenders view joint mortgage applications (whether you’re married or not). Then, take these steps to improve the odds you’ll land your dream home…and stay in love!
Joint mortgage application basics
It seems reasonable enough: If his credit is bad but hers is good, why not just apply for a mortgage using only her good credit score? The trouble is, if you submit only one partner’s information on the mortgage application, the mortgage underwriters will only consider that partner’s income and assets in determining whether to approve the loan. Usually, couples count on their combined income and assets to afford a home.
If the partner with good credit cannot afford the loan on his or her own, you’ll need to apply using both of your scores. That means a more difficult road to approval and much less favorable loan terms.
Steps to take if his credit is good and hers is bad
Talk about your credit now. The last thing you want is for your husband or wife to find out from a mortgage broker that you have bad credit. Remember, financial differences alone rarely imperil relationships, but a couple’s failure to communicate about their finances can. In an older post, I asked: Is It Okay to Get Married in Debt? I think it is, as long both partners are continually honest and communicative about money.
Check your latest credit scores. Again, talk about what you find. Why is one partner’s credit poor? Is it the result of a past problem or a pattern of financial negligence? For a few bucks a month, credit monitoring services let you track whether your credit is improving.
Set realistic expectations. In today’s times, it may be impossible for somebody with poor credit to get a mortgage alone. Together, with one good credit score and one poor one, you still have a shot at a mortgage approval, but it won’t be easy. Expect to deal with several lenders and to spend weeks waiting. You can also expect to pay a lot more in interest. Remember that this will also reduce the amount of house you can afford.
Improve your credit. You can usually improve your credit by a least a moderate margin in between six to eight months. Avoid any late payments, refrain from applying for new credit (or closing any credit accounts), and pay down any credit card accounts as much as possible.
If you apply alone
Despite the disadvantages, sometimes it makes sense for the partner with good credit to apply for the mortgage alone. (Perhaps that person also has a substantially higher income). The non-applying partner can also transfer any assets into the applying partner’s name, but any income will still be off limit.
Remember, however, that the deed of the house will be in the name of the partner whose name is on the mortgage—only. For married couples, this typically isn’t a problem. Should the owning spouse pass away, the home will go to the surviving spouse.
If you’re not married, think long and hard about how you want to buy a home together…especially if one partner is applying for the mortgage but expects the other partner to help pay. The partner that signs the loan owns the entire home in the eyes of the law—even if the other partner is paying 50% each month.
In this case, either determine that the non-owning partner is simply renting from the owning partner, or enlist an attorney to create a contract outlining how equity will be credited to both the owning and non-owning partner in the event of a sale or separation.