- 1.Turned Down for What: Rebuilding Your Credit After Being Denied a Mortgage
- 2.Can You Get a Mortgage If Your Spouse Has Bad Credit?
- 3.Considering Credit Counseling? Here’s What to Expect
- 4.How Does Your Credit Score Affect Your Mortgage Eligibility?
- 5.9 Common Credit Card Mistakes to Avoid
“Tell me about your credit history,” said no one ever on their first date.
In an ideal world, you would know your spouse’s credit and financial situation well before you tied the knot. However, you may find yourself marrying someone who has a low credit score (619-500) or a bad credit score (500 or lower) and it isn’t until you’re applying for a mortgage that you find this out.
Before you throw away your dreams of homeownership, check out these opportunities that may help you qualify for a mortgage even if your spouse has less-than-stellar credit.
Check and Improve Your Credit
You’ll need your credit report to understand why your score is the way it is. Sites like Rocket HQ provide your complete credit report and score and offer credit tools to help you further your credit knowledge. Once you and your spouse have obtained your credit reports and scores, you can take steps to positively impact them.
A simple way to improve your score is to start making your payments on time. Payment history is one of the largest factors used in calculating your credit score. A late payment can stay on your credit report for up to seven years.
Rocket HQ offers a score simulator that allows you to see how your credit score could change based on your debt-to-income ratio (DTI), the amount of monthly debt you have relative to your monthly gross income. Keeping your DTI relatively low is important, so try paying off most or all of your debt before applying for a mortgage, and avoid making large purchases on credit.
Dispute Credit Errors
Check your credit report for errors, fraud or unauthorized accounts. According to a 2012 study by the Federal Trade Commission, 5% of consumers had errors on their credit reports that could result in less favorable terms for loans. An error on your credit report could mean you pay more to borrow money, or it could be the difference between qualifying and not qualifying for the loan. Learn how to dispute errors on your credit report, and monitor your report regularly.
Save a Larger Down Payment
Higher down payments show lenders that you are fiscally responsible and creditworthy, so a larger down payment may make it easier for you to qualify. And if you put 20% down, you can avoid paying private mortgage insurance, which can mean big savings in the long run.
Lenders will typically offer better interest rates to those with larger down payments and higher credit scores. When your loan-to-value ratio is lowered with a larger down payment, the lender’s risk decreases, and you can often reap the benefits with lower interest payments.
Speak with Your Mortgage Expert or Lender
Explain the whole story of your credit issues to your mortgage expert or lender. Perhaps you have a high income and your credit was damaged because of past mistakes, or perhaps you were a victim of identity theft.
Lenders can take these factors into consideration and work with you to provide alternative solutions. Make sure you have income and financial documentation with you when you explain your credit issues, as these things may help you build a stronger case.
If your spouse’s credit score prevents you from qualifying for a mortgage or drives your interest rate higher, you may want to apply for the mortgage solo. Keep in mind that if you apply without your spouse, you may qualify for a smaller loan amount as only your income and assets will be factored in.
Remember that lenders consider your income and DTI, not just credit when determining mortgage eligibility and the interest rates you’ll pay. If your spouse has a relatively high income and low debt levels, it may be smart for you to apply together. A good lender should help you work these scenarios to determine what is best for you.
Ask a Parent for Help
Asking a parent for help could allow you qualify for a mortgage at the best interest rate. Depending on the type of loan you’re applying for, a parent or another non-occupant can co-sign on your mortgage.
Parents or other family members can also gift a down payment, closing costs or prepaid interest, although large deposits into your account will need to be documented and explained to your lender.
Check Before You Walk Down the Aisle
If you’re planning to start a life with your significant other, begin looking into their financial situation before you get married. Knowing the whole picture in advance can save both parties a lot of frustration and heartbreak in the long run.
So what should you do now? First, pour two glasses of wine. Then, review your complete credit reports and scores at Rocket HQ. From there, you can review your options and determine what steps to take to get that house of your dreams and live happily ever after.
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