If you are looking to buy a house with your spouse, it can be a very exciting time! But to make such a move, you have to think seriously about how you’ll pay for it.
Unless you are ready to put down all cash for a house, chances are you will need a mortgage. A mortgage is a loan specifically for buying a house. It allows you to pay a down payment that is a portion of the house’s price. Then, your mortgage company pays for the rest while you give a monthly payment to your mortgage lender.
However, getting a mortgage and buying a house when bad credit is involved can be tricky. We’re here to tell you that buying a house when one spouse has bad credit is still possible. If you follow this guide, you and your spouse can soon be getting the keys to your new home!
Qualifying for a Mortgage
Just like any loan, there are specific qualifications you must meet for any mortgage. The good news is that each lender may have different requirements or more heavily weigh certain qualifications than others. But in general, here are the four things any bank or lender will ask for:
- Income (stable for 2 or more years)
- Credit score
- Debt-to-income ratio
- A down payment
The value you and your spouse bring to each qualification will affect being approved for a mortgage as well as having more favorable terms on your mortgage.
You can also make up for shortcomings with other requirements. For example, if you have a high income but over the recommended 36% or less debt-to-income ratio, you may still qualify for the mortgage you need.
What is considered bad credit?
Your credit score is an important part of any mortgage application. Generally, you will want to have a minimum of 670. However, the higher your score, the better your mortgage will be.
If you or your spouse has a score lower than 670, this bad credit can greatly affect your application. This means that either your application won’t be accepted, or you won’t get the mortgage terms you were looking for. This also usually means higher interest rates for you and your spouse.
But, even with bad credit, you still have options. When you apply for a mortgage, you can choose between applying for a joint mortgage or opting to apply alone. There are pros and cons to each option; however, just because one spouse has a bad score doesn’t mean you can’t apply for a joint mortgage.
Should you apply for a joint mortgage?
Applying for a joint mortgage means that the mortgage and house will be in both your and your spouse’s names. You will both own the house equally. You will both owe the monthly payments to your mortgage lender.
It also means that whoever reviews your application will need to look at both spouses’ financial history. If you or your spouse have truly terrible credit, it could still weigh against you.
Just because one spouse has bad credit, it doesn’t mean that filing for a joint mortgage isn’t an option! You just need to carefully consider why you are applying for a joint mortgage and what you can do to help your application. You can also take the time to improve the low score in question.
However, perhaps you have worked without success to improve the credit score. Or maybe their other financial qualifications such as income don’t make a significant impact on your loan application. If this is the case, then applying alone may be the best option.
Choosing to Buy Without Your Spouse
Buying a house when one spouse has bad credit isn’t the end of the world. The easy way out of dealing with your spouse’s bad credit is to apply alone. Your lender may suggest you apply alone if you can obtain the loan you need without your spouse. Sometimes, if your spouse has bad credit but a much larger income than you, this could outweigh the bad credit and actually help your application.
Keep in mind that the names on the mortgage show who is responsible for paying back the home loan. Just because one spouse isn’t on the mortgage, it doesn’t mean they don’t own the home. The title of the home can still have both of your names on it. Both names can be on the title without both being on the mortgage. This would mean both share ownership of the home together, but only the spouse listed on the mortgage is legally responsible for making the mortgage payment.
Before taking the step of applying alone, make sure you have considered what your application would look like with and without the other’s financial support.
Tips for Building Your Spouse’s Credit
Bad credit isn’t forever. There are many ways you can quickly boost your spouse’s score. That not only helps your spouse but your joint financial future as well.
The question of buying a house when one spouse has bad credit doesn’t need to be a problem if you can take steps towards having a good credit score. We recommend not rushing into buying a house if taking some time could mean a better credit score for an even better mortgage.
Here are some things you can do to improve a credit score:
- Check for common mistakes. Some errors may be affecting the credit score.
- Lower credit utilization ratio. Work to get the credit utilization ratio ideally under 10%.
- Add your spouse as an authorized user. Allow them to benefit from your responsible credit utilization.
- Pay all bills on time. This is one of the most important parts of a credit score, so make sure you and your spouse are paying on time.
Once your spouse’s credit has improved, you can apply for a joint mortgage without worrying.
Buying a house when one spouse has bad credit is possible. But it means that you will either need to accept higher interest rates, take time to improve the credit score, or apply for a loan without your spouse.
The good news is that you and your spouse have options to make your homeownership dream a reality. At Associates Home Loan, we can help you and your spouse pay for your new home. If you want to learn more about getting a mortgage to finance your home, contact our team today!