Buying without your credit-challenged spouse

December 11, 2017 - 4 min read

Spouses do not have to apply together

Married couples typically apply for a mortgage together.

They can pool their resources to qualify for a bigger home or one that better suits their needs.

But some couples discover that one spouse has a high credit score and the other does not.

More than 20 percent of the U.S. population has a credit score below 600 according to Statistically, many couples are in a relationship with someone with a very different credit rating.

But there is a way to qualify in this situation. Just one spouse or partner can apply for the mortgage.

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Your lender uses only one of your three scores

Mortgage lenders rely heavily on your FICO credit score to determine whether to lend you money and at what interest rate.

Lenders consider a FICO score of 740 or higher a strong one. They will pass out their lowest interest rates to borrowers with scores in this range.

But if your FICO score is too low – say under 640 – you’ll pay higher interest rates, making borrowing money for a new home more expensive. If your score is even lower, you might not even qualify for a mortgage at all.

Each applicant has three FICO credit scores, one compiled by each of the three national credit bureaus, Experian, Equifax and TransUnion.

When you and someone else – a spouse, partner, friend or relative – apply together for a mortgage loan, your lender will look at your three scores as a set, and your co-borrower’s score as a set. They will use the middle score from each of you.

For instance, you have scores of 750, 780, and 740. Your lender will use the 740 score when determining your approval status and rate.

If your spouse has a similar middle score, you proceed with the loan as usual. But that’s not always how it works out.

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Removing your spouse to qualify, increase affordability

The problem occurs when the middle score of your spouse or partner is a weak one.

Lenders won’t take your high score and your partner’s low score and average them together. Instead, your lender will only rely on the weakest middle score between you and your fellow applicant. Your lender will toss out the higher middle score.

So, if your middle FICO score is a strong 750 and your co-applicant’s is 610, your lender will use the weaker one. Even though you have an excellent FICO score, you might not be approved, or pay a higher interest rate your partner’s score.

If you face this situation, it might make sense to apply for a mortgage without your partner or spouse. This way, your lender will only consider your higher FICO score.

You’ll greatly increase your odds of qualifying for the loan.

Leaving a spouse off the mortgage application can boost home affordability too. The lender will use only the borrowing spouse’s credit score when issuing the mortgage rate.

A higher credit score will lead to lower rates and monthly payments. Private mortgage insurance (PMI) is also largely based on credit score, so you could save there too.

Qualifying with one income

Taking this approach isn’t a perfect solution. The lender will not consider the income of your partner or spouse if you apply for the loan on your own.

This could mean qualifying for a lower mortgage amount and buying a less-expensive home.

The strategy works best when the higher-credit spouse also makes the bulk of the income. In the opposite situation, a one-spouse loan application might not work. Still it is worth getting an analysis

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The non-borrowing spouse can contribute downpayment funds

If you are married, the lender will allow you to use funds from the bank account of the spouse who will not be on the mortgage for the downpayment and closing costs.

Likewise, you can use funds from a joint bank account owned by you and your partner, whether or not you are married.

If you are neither married nor have joint bank accounts, the non-borrowing partner can still contribute funds. The funds would be considered a mortgage gift, for which a would be completed.

A non-borrowing spouse can be a co-owner

Applying for a loan solo does not need to affect ownership of the home.

All borrowers on the mortgage application typically must be on title as an owner. However, non-borrowers can be on title as well.

This means that both you and your spouse or partner are considered official owners of the residence. The mortgage simply spells out who is officially responsible for the monthly mortgage payments. It is not necessarily equivalent to the ownership status.

Waiting to purchase a home together

Some couples might wait to until your spouse or partner can build better credit before you apply.

Boosting a credit score is a relatively simple process for many applicants. Often, it just a matter of obtaining a to remove errors.

In other cases it can take months to improve a low credit score. Consumers should weigh the costs of waiting to buy with the benefits of doing so.

Those who wait will be able to combine two incomes and qualify for more house that could suit your needs longer.

What are today’s rates?

Home buyers and refinancing consumers are discovering that low rates are helping them qualify, even when only one spouse is on the mortgage.

Get an assessment from a lender and check today’s rates. You might be surprised at the low costs of homeownership in today’s market.

Time to make a move? Let us find the right mortgage for you

Dan Rafter
Authored By: Dan Rafter
The Mortgage Reports contributor
Dan Rafter has written about mortgage topics for more than 20 years. His stories have appeared in the Washington Post, Wise Bread, the Motley Fool, Fox Business, and more.