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When Two People Apply for a Mortgage

What information do lenders use when two people apply for a mortgage? Can you use one person’s credit score and the other person’s income?

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

According to standard guidelines, when two people apply for a mortgage as co-borrowers the lender evaluates all of the personal, financial, credit and employment information for anyone applying for the loan. This includes all co-borrowers as well as anyone who co-signs the mortgage.  The applicants do not get to choose the information the lender uses to determine their ability to qualify for the loan.

For example, when two people apply for a mortgage together, the lender uses the lower credit score between both applicants to determine if they qualify for the loan and to set their loan terms including their mortgage rate and closing costs. For applicants with three credit scores, the lender uses the middle score. For applicants with two credit scores, the lender uses the lower score.

The example below demonstrates the credit score that lenders use for co-borrowers. In this case, both borrowers have three credit score from the different credit bureaus.

Applicant 1

Credit Score 1: 680

Credit Score 2: 700

Credit Score 3: 720

Applicant 2

Credit Score 1: 640

Credit Score 2: 660

Credit Score 3:680

Because both applicants have three credit scores, the lender uses the middle score for each to determine which applicant has the lowest score. The middle score for Applicant 1 is 700 and the middle score for Applicant 2 is 660.

So in this example, the lender uses the lower middle credit score of 660 to determine the applicants’ ability to qualify for the mortgage. The difference between a credit score of 660 and 700 is relatively significant and may impact the loan terms offered by the lender.

Review Credit Score Required for a Mortgage

The lower the credit score used by the lender, the higher your mortgage rate. A higher mortgage rate increases your monthly payment and usually reduces the loan amount you can afford. Additionally, if your credit score is too low, you may not qualify for certain mortgage programs.

This is why we recommend that all applicants review their credit report and score three-to-six months before you plan to apply for a mortgage. Reviewing your credit information earlier enables you to identify and address issues on your credit report and potentially improve your score before you apply for the loan.

The same guidelines that apply to credit scores for co-borrowers also apply to your debt-to-income ratio. The lender includes the monthly gross income as well as all monthly debt payments for all mortgage applicants in your debt-to-income ratio. The example below shows how lenders calculate the debt-to-income ratio for co-borrowers on a mortgage.

Applicant 1

Monthly Gross Income: $2,000

Monthly Debt Payments: $500

Applicant 2

Monthly Gross Income: $2,000

Monthly Debt Payments: $1,000

Combined Monthly Income and Debt Payments

Monthly Gross Income: $4,000

Monthly Debt Payments: $1,500

The lender simply adds the monthly gross income and debt payments for both applicants and uses this information to determine the mortgage amount the borrowers qualify for. The higher your combined monthly income and lower your debt payments, the higher the loan amount you can afford, and vice versa.

Use our TWO PERSON MORTGAGE QUALIFICATION CALCULATOR to determine the loan amount two people can afford

Please note that if one applicant has relatively low monthly income and high debt expenses, you cannot exclude that person from the debt-to-income ratio, as long as he or she is on the mortgage application. If one of the applicants has too much debt it may significantly reduce the mortgage two people can afford or prevent them from qualifying altogether.

So what do you do if an applicant has a significant issue, such as a low credit score or high monthly debt, that negatively impacts two people's ability to qualify for a mortgage? One option is to have the person with the stronger profile apply for the mortgage as a sole borrower.

In this scenario only the stronger applicant’s credit score, income and debt are used to apply for the mortgage which may enable you to qualify for a higher loan amount or obtain better terms. It is important to highlight that if you apply for a mortgage as a sole borrower you are required to qualify for the loan solely based on your personal, financial and credit information. In short, you need to be able to afford the mortgage on your own.

The table below shows mortgage terms for leading lenders in your area. We recommend that you contact multiple lenders to understand the loan you can afford and to find the lowest mortgage rate and fees. Shopping for your mortgage is the best way to save money on your loan.

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Current Mortgage Rates as of July 19, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

If you get a mortgage as a sole borrower you can add the other person to the property title after the loan closes. In this case both people own the property but the borrower remains solely responsible for the mortgage.

Another option to consider is the HomeReady Mortgage Program which enables you to use income from a non-borrower household member, such as a relative, to support your loan application. In this case, the non-borrower household member lives in the property with you but is not on the mortgage so her or his credit score, income and debt are not included in the application, but the lender may consider her or his income to help you qualify.

For example, if your spouse has a low credit score but high monthly income, you may not want her or him on the mortgage but their income may be a supporting factor that helps you get approved.

Review our HomeReady Guide

To summarize, although lenders consider all credit and financial information for all borrowers that apply for a mortgage, there are several creative options if one borrower has a weakness on her or his application. Applying for the loan as a sole borrower or using a program such as HomeReady that applies more flexible qualification guidelines may enable you to overcome individual applicant challenges and qualify for the mortgage.

Sources

Co-Borrower Mortgage Guidelines: https://www.fanniemae.com/content/guide/selling/

HomeReady Guidelines: https://www.fanniemae.com/singlefamily/homeready

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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