Most married couples apply for a mortgage home loan jointly, meaning that they each put their name on the application. The biggest benefit to this is that the couple can pool their financial resources together. A joint application will assess both incomes. This affects a number of important metrics that mortgage companies use in assessing and approving applications, particularly the debt-to-income ratio (DTI).
The problem can arise when one person on the application has a much higher credit score than the other. If one spouse’s credit score is significantly lower, it can make it harder to borrow money.
If you find yourself in the same predicament, don’t worry. Here are five tips to help you get your mortgage approved even if you have a partner with challenged credit.
Tip #1: Check the Credit Reports
Start by checking your credit reports. Are they lower than you anticipated?
If so, then don’t immediately concede that the FICO score is accurate. While the credit agencies do their very best for fair and accurate credit histories, there are a lot of mistakes that make it through. One study reported that 1 out of 5 credit reports in the United States had errors on them. There’s a chance your credit reports are wrong, as well.
Tip #2: Correct Errors
Errors should be corrected, particularly if those mistakes are adversely affecting your FICO score. The first place to start is with the merchant or company that reported the event to the credit bureau. Have an earnest discussion on why you believe it to be a mistake and offer documentation to support your claim. Contacting the company is also a great way to get negative credit events removed even if they are accurate by looking for an equitable resolution to any outstanding debt or fees.
If you do not have any success in working directly with the company, then the Federal Trade Commission can help. Check their Consumer Information website for more information:
Tip #3: Assessing a Joint Application
Each applicant has three credit scores. These three scores are individually maintained by the three national credit bureaus – Equifax, Experian, and TransUnion. When you apply for a home loan, the mortgage lender will generally take the median score of these three. That means they’ll discard the high and low scores to instead focus on the middle FICO score.
When you apply jointly on a mortgage with your partner, they take the lower of these median scores for the application.
Tip #4: Single Application
The alternative is to submit an application that has just one spouse as the applicant. While it reduces the amount of income on the application, it does potentially offer a higher FICO score. If you’re gauging whether to submit a single or a joint application, speak with your mortgage broker or your loan officer. They can run hypothetical scenarios to see how the variables of the loan are affected in either scenario.
Tip #5: Down Payment Contribution
The good news is that even an individual application does not prevent a partner from contributing to the down payment. If you are not married and do not possess joint bank accounts, then you’ll need to draft a gift letter to explain the contribution of funds to the down payment. Your loan officer can specify the language needed for the gift letter.
Pacific Union Financial
Pacific Union Financial, LLC is a full-service mortgage lender providing mortgages, refinancing, and loan servicing across the country and around the corner. With expertise in home loans for credit levels from best to bruised, we’d love to help you enjoy all the benefits of homeownership. Get in touch today and let us show you how we work hard to make mortgage easy.