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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?

I have been married for about one year and we want to buy a condo, but my spouse has bad credit that will hold us back on a good loan. My credit is good. Can I apply for a loan on my own, for the purpose of buying a house as a married person? I would need to borrow about $250,000. I am a teacher (15 years).

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Bill's Answer
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Updated: Sep 3, 2014

Buy a Home
Highlights

  • Review how to apply for a mortgage when your spouse has bad credit.
  • Understand how debt to income ratio affects qualifying for a mortgage.
  • Examine how a credit score is determined.

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

248 Comments

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  • OK
    May, 2014
    ode
    My husband and I both own homes (with mortgages <20% equity). We are looking to purchase a house together. My credit is great, his is fair. Currently we live in my home, and rent his (it has been rented for 1.5 years). I am the breadwinner, but he does have some income. In our situation, it may be best for me to qualify for a mortgage on my own. We file taxes jointly and I am currently working with a lender that is checking if we have to claim the loss from our schedule e (for his house) if I am the sole borrower. Is that possible?
    0 Votes

    • BA
      Jun, 2014
      Bill
      Shop around and ask lenders if you qualify alone. One spouse on a mortgage and title usually causes fewer problems down the road.
      0 Votes

  • KK
    May, 2014
    Kristin
    My husband has substantial debt through his student loans. I want to buy the house by myself. If his loans default, can debt collectors take the home since we are married? Or will they have no right to it?
    0 Votes

    • BA
      May, 2014
      Bill
      You indicated you reside in New Jersey. If the house you plan to buy is in New Jersey, then it is likely New Jersey collection laws will apply should your spouse default on the student loans.

      See the Bills.com article New Jersey Collection Laws to learn more about the laws that apply, in particular the section "New Jersey Spousal Debt Liability." Please ask any follow-up questions you may have on that page.
      0 Votes

  • CM
    Apr, 2014
    christine
    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?
    0 Votes

    • BA
      Apr, 2014
      Bill
      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.
      0 Votes

  • IR
    Apr, 2014
    Iris
    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.
    0 Votes

    • BA
      Apr, 2014
      Bill
      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.
      0 Votes

  • ET
    Jul, 2013
    Eva
    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.
    0 Votes

    • BA
      Jul, 2013
      Bill
      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.
      0 Votes