Buying a Home – What to Do When You or Your Spouse Has Bad Credit
Buying a home is usually a fun and exciting process. That process usually starts with getting a mortgage pre-approval. One of the main qualifying factors for the pre-approval is a FICO credit score for each of the borrowers. Lenders want to make sure the borrowers have, in the past, demonstrated both the ability and willingness to pay off the debt that they have incurred. The credit evaluation process is what assists the lender in answering those questions.
Your FICO credit score is a three-digit score that three major credit reporting bureaus use to determine your creditworthiness. For reference, they are Experian, Equifax, and TransUnion. What’s interesting is not all three of these bureaus will have the same score for you as different factors and times may affect each score.
What Lenders Look At
In general, most lenders will use what is called the mid-score as the score they use to qualify you. For example, your credit report might show three scores of 692, 729, and 725. Of these, lenders will throw out the highest and the lowest score using the middle score for qualifying, or 725 in this example.
Let’s complicate the scenario a little. Now there are two borrowers for the mortgage. In that scenario, the lender will pull credit for both borrowers to get current credit scores for each borrower. From the example above, one applicant has a qualifying score of 725. Borrower number two’s scores read 712, 724, and 767. The middle score for borrower number two would be 724. Now we have two qualifying scores, 724 and 725. The lender will then use the lower of the two qualifying scores to qualify this mortgage loan. So far, pretty simple, right?
Let’s complicate the scenario. Now, what happens if you are married and one of you has bad credit? Let’s say that borrower number two has credit scores of 558, 570, and 512. Of these three, the qualifying score is 558, too low for most programs. The first step to usually follow is to try credit repair counseling. But that takes time, and truthfully, there is only so much they can help. What if there is a house you want to purchase now? Should you stop everything and wait a few months for the credit to improve? The answer, surprisingly, is no.
There’s a term in the mortgage industry referred to as a “non-purchasing spouse.” This means one spouse will be on the mortgage application, and the other left off. Doing so removes the damaged credit from the application altogether. But the non-purchasing spouse can still be on the title showing evidence of an ownership interest in the property just not on the mortgage.
There is a catch! The spouse with the good credit score must generate enough income to qualify to purchase the home on their own. If both incomes are needed to qualify for the home, the loan will be declined. But, if the one borrower can qualify using his or her income, there’s no need to put the other spouse on the loan application.
If qualifying is an issue, you might be able to put more money down to lower the loan amount to the level where the purchasing spouse can now qualify.
The Bottom Line
Damaged credit does not always have to postpone the home buying process. If you are thinking about starting the home buying process, find a great Realtor, and get a pre-approval! If there are any issues, we can begin to work on resolving them!
Please let me know if you would like to discuss this in more detail. I am also always happy to get you in touch with some trusted mortgage professionals that will confidentially go over your situation with you.
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About the Author
The above real estate article “Buying a Home – What to Do When You or Your Spouse Has Bad Credit” was written by Jeff Gould.
Jeff is a top-selling, nationally recognized Florida REALTOR® and local FishHawk Ranch real estate expert. You will find him selling homes in the Tampa Bay, Florida and surrounding areas. Some of those areas include FishHawk, Lithia, Riverview, Valrico, Apollo Beach, Brandon, and Tampa.
If you are looking to sell or buy a home anywhere in the Tampa Bay area, Jeff is your local and trusted professional.
Jeff can also be reached via text or phone at (813) 421-3007.
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