What credit score is used when two people apply for a mortgage?

By Michael Jensen, Mortgage and Finance Guru

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

Updated September 2, 2021

In short, when two people apply for a mortgage as co-borrowers, the lender uses the average of their median scores to determine if you qualify for the mortgage and to set your loan terms.  Please note that if you have scores from the three credit bureaus (Equifax, Experian and TransUnion), the lender uses the middle score for the borrower to calculate the average. If you only have two scores, the lender uses the lower of the two to determine the average.

For example, if your credit scores are 720, 700 and 680 and the other borrower’s scores are 700 and 670, the lender uses 700 (middle of three scores) for you and 670 (lowest of two scores) for the other applicant to calculate the average score, which is 685 in this case. This is the score used to assess your mortgage application.

The credit score the lender uses is important because it may affect your ability to get approved for the loan as well as you mortgage rate. If the credit score for one of the applicants is too low you may not qualify for the mortgage.

Review The Credit Score Required for a Mortgage

Most mortgage programs apply a minimum credit score requirement for you to be eligible. The minimum score required for a conventional mortgage is 620, depending on the program, lender and other factors. Specifically, the HomeReady Mortgage Program requires a minimum credit score of 620 while other conventional programs may require higher scores.

Additionally, for conventional mortgages, the lower your credit score, the higher the mortgage rate you pay and vice versa. The higher your rate, the higher your monthly payment and lower the mortgage amount you can afford.

The minimum credit score required to qualify for an FHA mortgage is 580 if you make a down payment between 3.5% and 10.0% of the property purchase price and only 500 if you make a down payment of at least 10.0%. The lower credit score requirement is why many credit-challenged applicants choose FHA loans.

Also, unlike a conventional loan, FHA mortgage rates should not vary based on your credit score. So if you apply for a mortgage with someone who has a low credit score, the FHA mortgage program may be a good option because you may not be required to pay a higher rate.

Regardless of your credit score, FHA rates tend to be lower than conventional mortgage rates because the program is backed by the government. The downside to the FHA program is that your are required to pay an upfront and ongoing mortgage insurance premium (MIP) which increases your closing costs and monthly payment.

The table below shows FHA mortgage terms. We recommend that you shop multiple lenders to review eligibility requirements and to find the lowest rate and fees.

The other important point to keep in mind when two people apply for a mortgage is that the lender combines the monthly gross income and debt payments for both applicants to determine the loan you can afford.

If both borrowers earn a good income and have relatively low monthly debt expenses, you should be able to qualify for a higher loan amount if you apply for the mortgage together. On the other hand, if you or the other applicant has high monthly debt expense relative to your income then you may actually qualify for a smaller mortgage as co-borrowers.

Use ourTWO PERSON MORTGAGE CALCULATORto determine the loan two people can afford

In many cases applying for a mortgage with another person can help you afford a higher loan amount but you need to evaluate the credit score, income and debt expenses for both applicants to determine the mortgage you qualify for together. Depending on the credit and financial profile for you and the other borrower it may make more sense for you to apply for the mortgage on your own.

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.