Should I apply for a mortgage as a sole borrower or with my spouse who has a low credit score?
The answer to your question depends on the mortgage you want compared to the mortgage you qualify for under two different scenarios. In the first scenario, you apply for the mortgage as a sole borrower and in the second scenario you apply for the mortgage with your spouse. Below we outline the benefits and considerations of each approach so that you can determine the option that is right for you.
Applying for the mortgage as a sole applicant is the simplest approach. In this scenario only your credit score, gross income, debt expenses and employment history are factored into the mortgage application.
The advantage of this approach is that your spouse’s low credit score is a non-factor because he or she is not on the mortgage. If your credit score is relatively high, you should be eligible for the lender’s best loan terms including the lowest mortgage rate and closing costs.
The lower your mortgage rate, the higher the loan you qualify for and the lower your monthly payment. Additionally, this approach eliminates the potential that you may not be eligible for certain mortgage programs due to a low credit score.
The drawback to applying for a mortgage as a sole applicant is that your spouse’s income is not considered by the lender. This means that you may qualify for a smaller mortgage on your own than you would if you applied for the loan with your spouse.
Use ourMORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford as a sole applicant
After you understand the mortgage you qualify for on your own, you can compare this to the loan you qualify for with your spouse. In this scenario it is important to understand how your spouse's credit score potentially impacts your mortgage terms.
We should emphasize that when two people apply for a mortgage, the lender uses the average median score for the borrowers to evaluate your loan application and to set your mortgage terms. If an applicant has three credit scores, the lender uses the middle score to calculate the average.
For example, if the middle of your three credit scores is 740 and your spouse’s middle score is 660, the lender uses the average -- which is 700 in this case -- to determine your mortgage rate and ability to qualify for the loan. If an applicant only has two scores, the lender uses the lower score to determine the average.
For a conventional mortgage, the lower your credit score, the higher your mortgage rate. For FHA, VA and USDA loans, your interest rate should be relatively the same regardless of your credit score so you should consider these programs if you or your spouse has credit challenges.
The table below shows mortgage rates and fees for leading lenders in your area. We recommend that you contact multiple lenders to confirm the loan you qualify for and to find the best mortgage terms.
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If you do pay a higher rate due to a lower credit score, this reduces the loan amount you can afford and increases your interest cost. If your spouse’s score is too low, you may not be eligible for certain mortgage programs.
The advantage of applying for a mortgage with your spouse is that her or his income is factored into your application. So if your spouse earns a good income and has relatively low personal debt expenses, you may qualify for a higher mortgage amount together, even though you pay a higher interest rate because of your spouse’s credit issues.
Use ourTWO PERSON MORTGAGE QUALIFICATION CALCULATORto determine the loan you and your spouse can afford as co-borrowers
Simply put, the approach that works best for you depends on your financing objectives. If you want the lowest mortgage rate and total interest expense, then it likely makes sense to apply for the loan as a sole borrower.
If you are potentially willing to pay a higher mortgage rate to qualify for a higher loan amount, then you should likely apply as co-borrowers, assuming your spouse meets the minimum credit score requirement and has minimal monthly debt payments.
A final point to consider is if your spouse experienced a significant negative credit event such as a bankruptcy, default, short sale or foreclosure.
Lenders apply waiting periods following these credit events before you can apply for a mortgage. The length of the waiting period depends on the event, your mortgage program and if extenuating circumstances such as a job loss or medical illness contributed to the issue.
Review Waiting Periods After Negative Credit Events Before You Can Apply for a Mortgage
If your spouse experienced one these credit events he or she may not be eligible for a mortgage, depending on when the event occurred and the applicable waiting period. In this case, it may make sense for you to apply for the mortgage as a sole applicant assuming you can afford the loan you want.
Sources
"B3-5.1-02, Determining the Representative Credit Score for a Mortgage Loan." Selling Guide: Fannie Mae Single Family. Fannie Mae, August 30 2016. Web.
"Selling Guide Announcement, Credit Score Eligibility in DU." SEL LL-2021-08. Fannie Mae, September 1 2021. Web.
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