Oh my, you know it. You spouse or partner has racked up too much credit card debt and his or her credit score is in the toilet. But now you want to make the ultimate purchase together and you’re afraid their credit will harm your chances or cause you to get poorer terms. So, what can you do?
First, you need to determine if you even need their income to qualify. If you don’t, you can always add them to the title once the mortgage closes. But you need to know that they will be obligated to the mortgage as well once you do. If you have joint bank accounts you can still use your joint money for your down payment and it will be an asset on your application even if you don’t use their information for the application. If the money is in an account solely under your partner’s name, it cannot be used.
But what if you need to use their income to get the house?
There are options available. Lenders will usually look at the lowest score possible between applicants, so your amazing score will not outweigh your partner’s bad one. However, Fannie Mae and Freddie Mac offer flexible programs that will allow borrowers to consider income from non-borrowing members of the same household.
This allows lenders to stretch the debt to income ratio guidelines. Instead of the typical 43% debt to income, it’s more like 50%.
These programs may not be right for everyone. There are eligibility requirements and your income must be high enough to qualify, but not exceed the loan limits. The limits are based on location and price of the home.
Government financing may also be available. FHA, VA and perhaps USDA could be used and will offer more flexible credit score requirements.
The low credit score may not be that much of a detriment depending on how the spouse or partner came to get it. If was out of their control or from so long ago that it doesn’t reflect current financial management, it may be overlooked. This is something to talk to your lender about specifically. Some lenders actually do allow for lower credit scores and do an in-depth study on past spending and payment behaviors.
If you cannot qualify for any programs currently, it’s simply time to increase that score. Get your partner back on the right track by paying off debt, making on-time payments and talking to a lender about the different things you both can do to increase your chances.
Read More: How to Increase Your credit Score
So, it’s possible but there are a few factors to consider and determine before you know for sure you can do it. If you’re unsure or would just like to get a good place to start, give me a call anytime!