Who’s credit is used on a joint mortgage is one of the first and most important things you should consider when you start to look for a new home. While this one factor can sink your chances of getting a loan you can do several things to improve it. Below we are going to explore why credit scores are so important when you apply for a joint mortgage.
- Mortgage lenders do look at both credit scores
- It is simple to determine the credit score your lender uses
- You may or may not be able to get a mortgage if your partner has bad credit
- Joint mortgage does not mean joint ownership of the property
Credit scores are very important, but they are not the only factor. Income, debt, past credit history, and assets (especially savings) are also important considerations. It is also something you have some control over. You can improve your scores considerably and sometimes quickly.
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Do Mortgage Lenders Look at Both Credit Scores?
Mortgage lenders always look at both credit scores for joint mortgages. Furthermore, in some cases, they may look at both scores even if only one spouse applies for the loan. For joint mortgages, banks:
- Collect credit scores from the three credit bureaus
- Focus on the median score for each spouse
- Only consider the lower credit score or the two spouses when setting the terms of the loan
If you have a higher score, it does not matter how it is. Your lender will use the lower score to set the interest rate and other important terms of the loan. If the disparity is great enough, you may want to leave your spouse off the loan application. This means, though, that you cannot use their income to secure a larger loan.
In the cases of bankruptcy and foreclosure, it still may not be enough to leave your spouse off the loan. Some lenders consider the risk too great even if your credit is high and income substantial enough for the loan on your own.1
How is a Credit Score Calculated on a Joint Mortgage?
Banks use a complicated underwriting process to determine whether to give you a loan and then if accepted, the terms of that loan. Four broad categories make up the criteria they use for joint mortgages:
- Combined income for both you and your spouse
- Debt-to-Income Ratio
- Credit history for both spouses
- Assets and savings of both spouses
Your credit scores fall into the credit history category. This category includes payments history, any default accounts, and credit scores. Lenders arrive at the credit score they use in a pretty simple way. They get scores from each of the three credit bureaus, take the median score, and focus on the lower score of the two spouses. Let’s examine a hypothetical example to clearly demonstrate how they arrive at the credit score they will use.
The bank gets the following three scores from the credit bureau for spouse 1: 750, 725, and 715. The median, in this case, is 725. Note that it is not the average; that would be 730. Banks use the middle score. In this case that is 725.
Spouse 2 has scores of 700, 680, and 670. In this case, the median is 680. Since spouse 1 has the higher score (730), the bank focuses on spouse 2’s score (680) to determine qualification and subsequent terms of the mortgage.2
Can I Get a Joint Mortgage if My Partner has Bad Credit?
Whether you can get a joint mortgage if one partner has bad credit depends on several factors. The first thing to consider is how low their credit score is. If it is below 700 then you will have a hard time getting a conventional loan even if your score is very high. For an FHA loan, their score can be as low as 580 and still qualify. If their score is marginal, right around 700 for a conventional loan, other factors become very important:
- How high is your combined income?
- Do you have a lot of debt?
- Do you have any loans in default?
- What other assets and savings do you have?
- Do you have a bankruptcy or foreclosure in your history?
- How large is the deposit you will put down on the house?
The bank will consider all of these when it decides whether to grant you a loan. However, the bank will deny a loan based on one spouse’s credit if the score is very low. Therefore, do everything you can to increase the lower score as much as possible.
Joint Credit Score Calculator
There is not a joint credit score calculator because there really is not anything to calculate. We saw earlier that lenders take the two median scores from the three credit bureaus and focus on the lower median score. There are however many loan qualification calculators.
- Credit Karma has a good home affordability calculator.
- Nerd Wallet also has a nice mortgage calculator.
Each bank also has its own calculator, and it may be best to use the one for the lender you intend to use. This is because each bank has its own underwriting rules. While the differences may be subtle, it may make a difference whether you get approved and what terms you receive.
Does Joint Mortgage Mean Joint Ownership?
A joint mortgage does not mean joint ownership. While they are usually joined at the hip, they are two very different things. The mortgage is the loan on the property, while joint ownership comes in the form of a deed or title to the property. You can be on the deed or title but not the mortgage. Likewise, you can be on the mortgage but not on the deed or title.
As you can imagine, it is rare to find someone on a joint mortgage but not have any ownership stake in the property. However, it does happen. A common example is a case where parents co-sign a mortgage with a child.
It is more common to see one name on the mortgage, but two names (or more) on the title. Married couples do this sometimes when one spouse has serious financial issues.
It is rare to see either case, but each happens from time to time. They both, then, illustrate that a mortgage is not the same thing as ownership.
Final Thoughts about Who’s Credit is Used on a Joint Mortgage
Who’s credit is used on a joint mortgage is a very important consideration when you buy a house. This one factor can determine if you get a mortgage at all. Beyond that, it has a huge impact on the interest rate and other terms of the mortgage.
In most cases, it is completely dependent on the lower credit score of the spouses. Therefore, since it is so important, you should do everything possible to improve the lower score. There are many articles out there to help you improve this score, but Nerd Wallet has one of my favorite 8-point guides to help you get your scores up fast.