Can two people qualify for mortgage if one has low credit score?

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated September 2, 2021

It is possible to qualify for a mortgage despite one borrower having a low credit score and there are multiple financing options available to you.

First, it is important to understand that when two people apply for a mortgage as co-borrowers, the lender uses the average median score for the two borrowers to assess your ability to qualify for the mortgage and to set your loan terms, including your interest rate and closing costs.

If both applicants have three credit scores, the lender uses the middle score for each to calculate the average.  For example, if your middle credit score is 700 and your co-borrower's score is 550, the lender uses the average score of 625 to evaluate your mortgage application. If an applicant only has two scores, the lender uses the lower score to determine the average.

In short, the lower your credit score used by the lender, the higher your mortgage rate and vice versa. A higher mortgage rate increases your monthly loan payment and reduces the loan amount you can afford. Additionally, most mortgage programs apply a minimum credit score requirement that applicants must meet to be eligible. The minimum score required for most conventional mortgage programs is 620 although some programs and lenders require higher scores.

The minimum credit score required to qualify for the FHA mortgage program, however, is 500 as long as you make a down payment of at least 10%. If you make a down payment of 3.5%, the minimum score required by the FHA program, you are required to have a credit score of at least 580. So if you and your co-borrower want to apply for a mortgage as joint applicants, an FHA loan could be a viable financing option as long as you can make the 10% down payment.

Review our FHA Mortgage Guide

Please note that the FHA program requires borrowers to pay a one-time and ongoing FHA mortgage insurance premium (MIP), which are extra costs due at closing and on a monthly basis in addition to your loan payment.

The positive news is that FHA mortgage rates are usually lower than conventional loan rates, which makes your monthly payment more affordable and helps offset the added cost of the FHA MIP. The table below outlines mortgage rates and fees for FHA lenders. The fees include the upfront FHA MIP you are required to pay. We recommend that you shop multiple lenders to find the best FHA mortgage terms.

In addition to the FHA program, your other option is to apply for the mortgage as a sole applicant. Your higher credit score enables you to qualify for conventional mortgage programs including many low down payment programs that allow you to buy a home with a down payment of only 3%. Additionally, conventional mortgage programs do not require you to pay an upfront mortgage insurance fee although you are usually required to pay private mortgage insurance (PMI) on a monthly basis if your loan-to-value (LTV) ratio is greater than 80% at closing.

Review Best Low Down Payment Programs

The table below shows conventional mortgage terms for leading lenders in your area. As you can see, not paying the upfront FHA MIP fee saves you thousands of dollars in closing costs. Again, we recommend that you shop multiple lenders to find the best loan terms.

It is important to highlight that if you do apply for a mortgage as a sole applicant then only your income (and monthly debt payments) are used to determine what size loan you can afford. Your co-borrower’s income and debt are not factored into your application which may impact the mortgage you qualify for.

Use ourTWO PERSON MORTGAGE QUALIFICATION CALCULATORto determine what size loan two people can afford

In this scenario, you can add the co-borrower’s name to the property title using a quit claim or grant deed after closing. After adding his name to title, make sure that your monthly mortgage payment is made from a joint checking account. This will help when you buy your next home because you will be able to show that both of you made the monthly payment on time. Please note that although you may add your co-borrower to the property title, he is not added to the mortgage note, which means you are solely responsible for the mortgage.

In closing, I recommend that you determine what size mortgage you can afford as co-borrowers compared to the loan you can afford as a sole borrower. You can then compare the monthly payment and fees for an FHA loan to a conventional mortgage to understand what option fits your financial budget and best positions you to buy the home you want.

Sources

"Selling Guide Announcement, Credit Score Eligibility in DU."  SEL LL-2021-08.  Fannie Mae, September 1 2021.  Web.

"B3-5.1-01, General Requirements for Credit Scores."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, August 7 2019.  Web.

"II.A.1.b.ii.(A).(3) Borrower Minimum Decision Credit Score."  FHA Single Family Housing Policy Handbook 4000.1.  Federal Housing Administration, January 2 2020.  Web.