Even if you have a high score, getting a loan will be more difficult because of your spouse’s low score.
Since we got married two years ago, my wife and I have maintained our financial segregation. We applied for a mortgage together, and I just found out that her credit score is about 100 points lower than mine. Will it affect our interest rate if we have different credit scores and how do lenders determine a couple’s creditworthiness?
It could make a big difference in your rate. Lenders obtain credit reports from the three credit bureaus for both partners, then focus on the median score for each partner. The loan’s rate and terms are determined by the lower of those two scores, according to Brad Sherman, a loan officer with Nationwide Mortgage Services in Rockville, Maryland.
Sherman says that regardless of how high your credit score is, you may have trouble getting a mortgage if your wife’s FICO credit score is below 620. Both of your median scores must be 740 or higher to be eligible for the lowest interest rate. Your interest rate will be higher and you’ll need a larger down payment if your credit score is low.
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If you put 20% down and your FICO score is 660, which is the lower of the two median scores, Fannie Mae, which insures mortgages, would demand a one-time pricing hit of 2 points. 5 points, says Randy Johnson, of Credit. com. That’s $7,500 on a $300,000 loan. Depending on your wife’s credit rating, putting down more money might enable you to get a better deal.
Joint assets can still count when applying for the loan in your own name, as long as both of you will be on the title. If your wife’s credit score pushes you below a critical cut-off point, it may be preferable to try to qualify for the loan based solely on your income. It makes no sense to apply jointly if their credit scores are too different, according to Credit com.
As long as you make your payments on time, you won’t have to worry about a joint mortgage hurting your credit score if you decide to take out the loan together. According to Maxine Sweet of the credit reporting agency Experian, “There is no crossover of bad credit history from one individual to another.” “Each person has his or her own credit report. ”.
Lankford receives hundreds of questions about personal finance each month from readers as the “Ask Kim” columnist for Kiplingers Personal Finance. Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How to Save Money on Insurance — and Still Get the Coverage You Need (Kaplan, 2006), Kiplingers Ask Kim for Money Smart Solutions (Kaplan, 2007), and The Kiplinger/BBB Personal Finance Guide for Military Families are all written by her. She frequently appears as a financial expert on radio and television, including the National Public Radio, CNN, CNBC, and NBC’s Today Show.
FAQ
Which credit score do mortgage lenders use for married couples?
Lenders typically consider each applicant’s middle score to determine what’s known as the “lower middle score.” Consider the scenario where your credit scores are 723, 716, and 699 from the three credit bureaus, while your partners’ scores are 688, 657, and 649. the lower of the two middle scores, which is 657, will then be used by lenders.
Do lenders look at both spouses credit scores?
When assessing your loan application, the majority of mortgage lenders will look at both of your FICO Scores. Even if your spouse has a good credit score and is eligible for a loan with a favorable interest rate, your poor credit score may mean that you both would only be eligible for a loan with a detrimental interest rate.
Do they combine credit scores when buying a house?
When applying for a joint mortgage, both of your credit scores will be considered. Lenders will typically review all three of your major credit bureaus’ individual credit scores for you to determine which one is the “lower middle” score.
Do both spouses have to have good credit to buy a house?
When determining your creditworthiness as a pair, lenders don’t just average out your two credit scores or choose the highest one; instead, they give the lowest credit score the most weight. A joint mortgage application might be rejected if your credit is excellent but your spouse’s isn’t so hot.