Joint mortgages for couples, whether married or not, can be problematic if they have conflicting credit scores. What is the situation if you have a high FICO score, but your partner’s score is low? You might both have a good income now, and also money in the bank, but what is the situation regarding a mortgage?
Generally a low FICO score will result in no mortgage at all, or at best, limited funds at a high interest rate. There are options available to those with a bad credit record, examples being FHA and VA mortgage loans. However, what if you want a regular mortgage, because you have excellent credit, but your new wife’s credit is shot?
You fundamentally have three options available to you. Here is a brief description of these, after which you must decide which is best for your particular circumstances. A professional mortgage adviser should be able to offer you more advice, but those below are your main options.
Become Co-Owners and Mortgagees
By purchasing your home as a couple, the lowest credit score of you both will normally be taken as the working figure. That means that you may not be offered a mortgage loan, but if you are, then it will be at a high interest rate.
The lender will take the view that you are equally responsible for payment, and the lower FICO score will introduce too much of risk for these be treated as a normal joint mortgages. They will therefore likely be regarded in the same as if the lower risk partner had made the application alone.
One Person Buys the Property
The person with the higher credit score buys the property. In this case, the income of the other partner would not be taken into account. The amount that can be borrowed will therefore be limited to what is warranted by a single income. There will be no problems getting the mortgage, but your home would by definition be smaller than you could afford between you.
Third Party Involvement in Joint Mortgages
Persuade a third party to become the second name on the joint mortgage. When a mortgage is taken in two names, it does not matter whether the two names are living together in the property or not.
If a parent, other relative or fried is prepared to act as co-buyer, then your buying power will include their income as well as yours, and you can purchase the home you want. Keep in mind that if that third party has credit issues then you are back to square one!
You must make sure that all payments are made on time, because that third party will be informed if any are missed. Not only could that be embarrassing, but if they decide that the risk has become too great, your relative or friend could insist on having their investment back – meaning you must sell your home.
Is Renting a Temporary Option?
Mortgages for couples with conflicting credit records are best negotiated with the lender. If you can offer proof of income of the second buyer, and persuade the lender that the payments will be made, you might be offered a bit more – but not as much as if you both had good FICO scores.
The best route to take might be to rent while the one partner builds up their credit score. There are ways to do this, and it could take just a few months. If they can afford their share of the joint mortgage, they can use that cash meantime to pay off the higher interest debts and bring their credit record back into line.
Alternatively, set your sights on a lower cost home meantime. That would also give you both time to work on improving the lower score. The second name can be added to the deed later if the lender agrees – that will usually be OK as long as the payments are regularly made.
Joint Mortgages for Couples: Summary
Joint mortgages for couples can help them to purchase a larger home by taking both salaries into account, but that also means both credit records will be taken into account. If one FICO score is low, then that could compromise the terms of mortgage offer. It is sometimes best for couples to work on improving the poorer credit score before applying for joint mortgages.