Mortgage When My Spouse Has Bad Credit
- 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.
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).
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:
- stable income — 2 years or more
- attractive credit history — a high credit score and few mishaps
- low debt-to-income ratio — the less debt you have the better
- 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.
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.
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.
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.