Couple with Different Credit Scores and Jobs Apply Mortgage
I have a higher credit score than my spouse. She also just started her own business after taking an extended break from working. We are trying to decide if we should apply for a mortgage as co-borrowers or if I should apply for the loan on my own. What should we do?
Your question raises two issues. The first issue is the discrepancy in credit scores between you and your wife. The second issue is determining if your wife's income will be included in your mortgage application given her employment gap and status as a self-employed borrower. I address each issue below.
When two people apply for a mortgage as co-applicants, the lender typically uses the lower credit score between both borrowers for the mortgage qualification process. The higher the credit score used by the lender, the lower your mortgage rate, and the lower the credit score, the higher the mortgage rate. So if one co-applicant has a significantly lower credit score than the other, they may end up paying a higher mortgage rate and higher monthly payment. Please note that if you are married, the lender pulls a joint credit report for both borrowers but this does not change how lenders view your credit score or profile.
So the impact of a discrepancy in credit scores for two borrowers depends on the specific credit scores for the applicants. If one applicant's credit score is in the high seven hundreds or above and the other applicant's score is in the mid-to-low 700s, the difference in scores may not be a significant issue because both borrowers have relatively high scores. 700 or above is usually the minimum credit score to receive a lender's lowest mortgage rate so depending on both borrowers' scores, they may be able to qualify for the best loan terms if they apply as co-applicants. When you speak with lenders you can clarify the minimum score they require to get the best mortgage rate as this guideline can vary.
If one applicant has a good credit score but the other person has a bad credit score or score that requires them to pay a higher mortgage rate, then the difference in scores may end up costing a lot of money. Additionally, if one of the scores is really low then the couple may not be able to qualify for certain loan programs if they apply as co-borrowers. So if the difference in a couple's credit scores is significant and the applicants are in different credit rating bands (for example one person has excellent credit while the other person has a below average credit) then it may make more sense for the person with better credit to apply for the mortgage as a sole applicant.
The second issue -- your wife's job history gaps and self-employment -- likely present a more significant issue when you apply for a mortgage. Most lenders require a two year job history for self-employed borrowers, as verified by the applicant's tax returns. In some cases an employment history of only a year is required if the self-employed applicant previously worked in a similar field. We provide a comprehensive overview of the employment history requirement for a mortgage for you to review.
The challenge is that when you combine a relatively short self-employed job history -- even if the borrower previously worked in the same line of work -- with an extended employment gap, my sense is that the lender is not going to permit your wife's income to be included in your loan application. In this scenario it may better if you apply for the mortgage as a sole applicant because you do not want your wife's business expenses to be counted as debt if your loan application does not include her income.
You can use our Two Person Mortgage Qualification Calculator to determine what size mortgage two people can afford based on their monthly gross income and debt payments. You can also use this calculator to see what size mortgage you can afford if you apply on your own.
My recommendation is that you contact multiple lenders to understand how they would handle your unique situation. Explain your and your wife's circumstances and determine if it makes more sense to apply for the mortgage as co-borrowers or as a sole borrower. My initial reaction is that it may be best for you to apply as a sole applicant but your circumstances are relatively unusual so you do not know definitively until you speak with lenders. When you contact lenders tell them you want to have a preliminary conversation about your financing options. Request that they not pull your credit report until you have determined the best approach and you are ready to be pre-approved and move forward with the loan.
We advise you to contact at least five lenders as qualification guidelines vary. Plus, shopping multiple lenders is the best way to save money on your mortgage. You can contact the lenders listed on the table below.
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