Mortgage When My Spouse Has Bad Credit

I am married, have a good credit score, and my spouse has bad credit. Can I apply for a mortgage on my own?

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Bill's Answer: Answered by Mark Cappel

The quick answer is: Yes! You need not apply for a joint mortgage with your spouse.

Generally speaking, if you and your spouse apply for a loan jointly, the lender will look at your combined income, combined debt-to-income (DTI),and both of your credit scores. If your spouse does not have income, or you do not need his or her income to qualify, then you may apply for a loan without him or her.

Banks want four things in a perfect borrower:

  1. Stable income — 2 years or more
  2. Attractive credit history — a high credit score and few mishaps
  3. Low debt-to-income ratio — the less debt you have the better
  4. A down payment — a minimum of 3.5%, but more is better

If a potential borrower lacks in any one (or more) of these, the potential borrower find qualifying for a loan difficult.

Work with a broker and see what mortgages you qualify for. Download a Uniform Residential Loan Application (Form 1003), complete it using only your income and credit. Then, complete a second Form 1003 with both your income and the income of your spouse. Finally, start shopping. Get mortgage quotes from up to four pre-screened lenders from Bills.com.

Reasons to Apply for a Joint Mortgage

If your low-credit-score spouse makes a high income, there is a chance his or her income would improve your DTI ratio and thus increase your likelihood of obtaining a loan despite the low credit score.

Some spouses feel more secure in a property where their name is on the lease or mortgage. When both spouses are on a mortgage and one spouse dies, the other can assume the mortgage and depending on how the property is titled, the surviving spouse will have 100% ownership of the property without it going through the probate process.

There are legal tools available that bring a non-signatory spouse to the same place legally. Regarding the death of the mortgaged spouse, the ownership of the property can be handled with a will or trust. Life insurance can pay the mortgage if the signatory spouse dies.

Reasons to Not Apply for a Joint Mortgage

However, if you apply for a mortgage on your own, you solely carry the burden of that mortgage obligation. If you default you alone have liability. This can be a positive or negative depending on your perspective. Let us assume your spouse rebuilds his or her credit score. Let us assume you and your spouse encounter unexpected financial difficulty, and become delinquent on the mortgage, or allow a foreclosure. Your credit score will take the fall, while your spouse becomes a credit score lifeboat that allows you two to continue to find credit.

Or let us assume an equally dire circumstance where you and your spouse decide to divorce. Usually one spouse will want to stay the marital property. In that case, there is is a 50-50 chance the spouse who has the property in his or her name alone will keep the status quo on the mortgage and title. If the mortgage is jointly held there is a 100% chance the mortgage will need to be refinanced to remove the non-occupying ex-spouse from the mortgage. For these two reasons I recommend that if spouses, partners, friends, or family members who wish to occupy a house together can afford to do so they put the property in one person’s name only.

Recommendation

First, a competent mortgage loan officer will explain how to qualify for a mortgage. A great loan officer will help you find the best loan for your needs. Visit the Bills.com mortgage savings center to get no-cost quotes from up to five pre-screened lenders.

Second, if you have a high credit score and your spouse does not, do not to add yourself to your spouse’s credit cards. Add your spouse to your cards as an authorized user, which will help pull their credit score up. The spouse with poor credit should pay off any delinquent cards or accounts as quickly as possible and negotiate a pay for delete to remove these harmful accounts from their credit report.

Third, it might be important to understand how a credit score is calculated. A credit rating is based on several variables, including:

  • Payment history (do you have any late payments, charge-offs, etc.)
  • The amount and type of debt owed
  • Any maxed-out trade lines
  • Several secondary factors including length of credit history and how many recent inquiries have been made on a credit history.

Paying down maxed-out trade-lines will almost always boost a credit score. If you would like more information, please visit the Bills.com credit resource page.

Finally, spend a few minutes to learn if a no-cost mortgage is right for your situation.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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Comments (244)


Christine M.
Milton, WI  |  April 11, 2014
How does this apply in community property states? With just my husband, we can afford $200k. With me added, banks won't even glance in our direction. We have $25k for a down payment. Can my husband purchase a house on his own?
Bills.com
April 11, 2014
There seems to be an urban myth that both spouses must buy real property together. Not true! One spouse can buy property by himself or herself.

Lone spouses buy real property in community property states commonly. The purchasing spouse can have excellent credit while the non-purchasing spouse has poor credit.

Some lenders with conservative underwriting policies may choose to pull the credit report of the non-purchasing spouse to learn how much debt he or she owes that may be community debt. But not all have this policy.

You indicated you reside in Wisconsin. Wisconsin has a unique rule that requires lone spouses who wish to borrow to notify their spouse of the loan. Therefore, expect the lender to require you to attend the closing and sign disclosures you're aware your spouse is about to agree to a home loan.
Iris R.
Herndon, VA  |  April 08, 2014
With my income alone we only qualify for 155k homes in these areas are no less than $250k my question is ... I see there's a cosigner and a co borrower. Can I use my significant other as a cosigner if his credit is bad? I just want to use his income so we can qualify for a higher loan amount.
Bills.com
April 08, 2014
To have a borrower's income counted, the borrower needs to meet minimum credit requirements. If your significant other has poor credit, that will likely prevent him from being a co-applicant. Speak with a loan officer and then figure out what steps need to be taken to raise your partner's credit score. Lenders are reducing credit score requirements. Some lenders are now taking FHA loan applications with FICO scores as low as 550.
Eva T.
Reston, VA  |  July 04, 2013
I do have a Facebook account and tried to like your page but I could not find it. Just wanted you to know! My family has been in our condo for about 10 years. Unfortunately, my husband lost his job a couple of years ago and is now a stay at home dad. We are currently looking into refinancing with a cash out option to try and get our bills under control. We currently are getting by but only by paying the minimum on our credit cards/loans. Our current mortgage company says that they could refi but only give us enough cash out to pay off one of our loans, but my husband would stay on the mortgage. The second company says that if I applied on my own, we could keep our mortgage the same, and pay off all the big bills, not counting my husband's one credit card and our lesser cards (2 or 3 of less than $1000 ). However my husband then wouldn't be on the mortgage. I'm worried that this will be detrimental to his credit rating in the future when we decide to sell and buy a new house. I'm conflicted as to what I should do. In our current state, we are currently living paycheck to paycheck, trying not to put anything on our credit cards, bit by the end of the month, it is difficult.
Bills.com
July 09, 2013
Your central question is, "How much will refinancing our mortgage in one spouse's name alone impact the other spouse's credit score?" The answer is, "It depends." If your spouse has several open tradelines — a general credit card, store card, and oil company card — and his credit utilization is low and payments are on time, his credit score will not be harmed when you refinance. However, if the mortgage is his only tradeline, or the only tradeline with a positive credit history, then refinancing in your name alone will harm his score.

If refinancing saves you money and puts you in a stronger financial situation, do it! Fear of potential harm to your spouse's credit score is not a good reason to hold back if the numbers are otherwise in your favor.
M P.
Chicago, IL  |  March 28, 2013
I am not currently on our mortgage or deed. My credit is much better than my husbands. If I go on the deed, will this damage my credit? We are underwater as well. Can I refinance myself?
Bills.com
March 28, 2013
Allow a brief digression to define several terms before we tackle your question. A deed is a document used to convey real property from one person to another. The name on a title determines who owns the property. If, for example, Oscar wants to sell his property to Bob, Oscar will give Bob either a quitclaim or warranty deed to his property, which Bob will then bring to the county recorder's office so that the owner's name on the property's title can be updated. On to your questions.

It is unlikely your spouse using a deed to add you as a concurrent or sole owner of his real property will change your credit score. It is unlikely either conveyance will appear on your credit report.

Let us say your spouse adds you as a concurrent owner, or conveys the property to you entirely. Doing so does not change your spouse's liability for the loan. Nor does it make you a co-borrower on the existing loan. Therefore, you would not, from legal or financial perspectives, be refinancing the loan to add you as a borrower or co-borrower. You would be qualifying for a home loan from scratch. This is neither good nor bad, nor is my explanation here meant to discourage you from contacting HARP lenders to learn what rates and terms you qualify for. If you yourself qualify for a HARP loan, be prepared to consult with a lawyer about filing a quitclaim deed to convey the property from your spouse to you.
Melissa K.
Saint Augusta, MN  |  April 13, 2012
My husband and I are planning on applying for a VA guaranteed home loan as he qualifies and we don't have a large amount for a down payment. His credit score is terrible, 606, due to defaulting on student loans a few years back. (All of which are now paid and closed). My score is much better at 797. However, I am a stay-at-home mom and have no income. It is my understanding that my score will not come into play since the lender will only take the lower into consideration. Are we SOL unless he somehow gets his score up? Or do we have options? For what it's worth, we have zero debt. Thank you in advance.
Bills.com
April 19, 2012
I recommend that you speak with a loan officer. His 606 credit score is not good, but it is not quite in the terrible range. Your strong score will not help the loan application, due to your current lack of income. The fact that you have zero debt helps your debt-to-income ratio, which strengthens the application. If his loans are still in default or in collections, that could be a barrier to qualifying.

A quality loan officer will let you know if you qualify or what needs to be changed, in order to be approved. You can get a free, no obligation mortgage quote for a VA loan.
Dave P.
Vernon Hills, IL  |  April 11, 2012
BTW I should add, the major improvement to her score was from fixing the alleged late payment from a few years back, which no one recommended I try to do (it was just something I thought up and did on my own). I would recommend to anyone going that route to dispute with the original bank FIRST, before trying to dispute with the credit reporting agencies, because if they re-affirm you can get stuck with your dispute being called "frivolous" and then it's harder to fix if you address it with the bank later.
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Brian M.
Aurora, CO  |  June 25, 2012
You may have already got what you need but if you have not go to this website https://www.optoutprescreen.com, it bumps your score 10 to 15 points. You opt out of receiving credit card offers for 5 years and you can reverse it any time.
Dave P.
Vernon Hills, IL  |  April 11, 2012
Reporting back... I was able to get my wife up over 750 and we moved in last week. It was a bit tricky: I had to call the bank that originally made the billing error and get them to change their record (the hard part was finding the phone number, a 30-second conversation got it fixed) then because they had previously affirmed the record, one of the reporting agencies labelled the dispute "frivolous" and refused to re-check it, until my lender went through the whole "rapid rescore" process. The lender also recommended she pay off a $12 credit card balance, but finally her score came back good enough for their best rate. FYI the rules were changed in 2008, adding her to my credit card apparently doesn't do much of anything anymore.
Donna C.
Cincinnati, OH  |  April 10, 2012
My husband just received his residency in July of 2011. He makes approx. 45k a year, and has a joint credit card with me. Everytime we request a credit score they say that because he has only been here since July they don't have any information. I am currently a stay at home mother and do not have an income but my fico is about 660-670. I currently have one loan that I pay about 100 a month on for the next 2 years. Is there anything we can do to purchase a home with the credit issue that my husband is having?
Bills.com
April 11, 2012
Try to apply for a joint mortgage. Consider an FHA loan. Follow the page I just mentioned to learn more about FHA loans, and how to apply for an FHA loan.
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Brian M.
Aurora, CO  |  June 25, 2012
I have only been in the country for just over 3 years and i had the same problem up until a few months ago. I had to get high interest credit cards and make the payments on time for 2 years before my score get high.
S L.
Fremont, OH  |  March 30, 2012
I just want to make sure that my husband can apply for an FHA loan by himself. I have a great credit score but my DTI is not good. My husband on the other hand has a great DTI. He makes about $21,000 a year and only has a personal credit line that he is paying on which is $50 a mth. What would he say to the loan officer about not wanting me on the loan?
Bills.com
March 30, 2012
One or both spouses may apply for a home loan, whether it be an FHA-compliant or conventional loan. I recommend if one spouse qualifies alone, then he or she should be the one and only applicant.

As the article above explains, mortgage lenders look for these qualities in an applicant:
  • Stable income history (usually two or more years in the same field)
  • Strong credit history (what is the applicant's credit score?)
  • Low DTI
  • A down payment (plus some in reserve, too)

A spouse need not apply jointly for a home loan. In fact, the last two homes my spouse and I purchased we did so without the other applying jointly. One spouse applying for a home loan without the other is common.

Your spouse should tell the loan officer, "I am married, and I want to apply for this loan alone." The loan officer will proceed accordingly.

Mama V.
Tracy, CA  |  March 29, 2012
Hi Bill, I have a stable job, good income, high credit score, little debts and ny husband and I keep our finances separate. Would I be able to qualify for a conventional loan with a 10% down payment if I meet the DTI's without the lender looking at my husband's credit and debt? He is currently trying to short sale his home that was purchased before we got married. Thank you.
Bills.com
March 29, 2012
There seems to be an urban myth that states both spouses must apply for a home loan. This myth is untrue. One or both spouses may apply for a home loan. I recommend if one spouse qualifies alone, then he or she should be the one and only applicant.

In one state I am aware of — Wisconsin — some lenders insist on both spouses applying, but that is a policy and not a state law.
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Mama V.
Tracy, CA  |  April 11, 2012
I am just worried that when the underwriter/lender looks at the form 4056 transcripts, he will see my husband's mortgage interest on our joint taxes.
Bills.com
April 11, 2012
Talk to your broker about this situation. I may be too cavalier in my assessing this issue, and an underwriter might see the spouse's short sale as liability for you. Look at it this way. If you apply and it is not an issue, then your worries were for naught. But if this is a liability that scuttles a deal, then you were correct. If you do not apply, then it is a certainty you will not receive funding for a loan.
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