How your spouse’s credit affects your mortgage
Your partner's credit can affect you
- Lenders will check both spouses’ credit and income when you apply for a mortgage as a couple.
- You can apply for a mortgage as an individual even if you are married.
- Applying as an individual will lower your reported income, which could lower your loan amount.
- If you live in a community property state, lenders will check both spouses’ finances nonetheless.
A chain is only as strong as its weakest link, and the same can be said of a couple’s mortgage application. If you or your spouse has poor credit or a low income, your mortgage qualification or eligible interest rates can be damaged no matter how strong a profile the other spouse may have.
Getting married does not affect your individual credit reports and scores — you will not have a joint score — but it does affect your ability to get a mortgage together, and therefore the rates that you qualify for. While applying for a mortgage as a couple typically creates a stronger borrower profile, there are scenarios in which it can be more beneficial for one spouse to apply for a mortgage individually. A change of just half a percentage point on a mortgage interest rate can translate into thousands of dollars of difference over the course of a loan, so it’s crucial to understand which option is better for you before comparing lenders.
What Lenders Assess
When applying for a mortgage as a married couple, lenders look at the credit scores of both individuals. You cannot use only one person’s score or average your credit scores. In fact, lenders will take the lower of your scores. Everyone has a FICO credit score based on each of the three credit bureaus – Equifax, Experian and TransUnion. Between the two of you, there will be six credit scores to choose from. Lenders take the lower of the two middle scores as the final number to assess. Consequently, if one spouse has no credit history, your application will be assessed on that basis. It is important for both you and your spouse to check your credit reports for errors and work to improve your credit scores before applying
This is another scenario where either individual’s finances can harm or help your mortgage application. Applying as a couple means you have two contributors to your total household income, which typically creates a stronger economic picture for the lender and approval for a larger loan amount. There are some risks, however. If one partner has insufficient income, there can be little benefit in applying together. A joint application also means that both individuals’ debts are assessed. If you or your spouse has significant debt or uses a high percentage of their available credit, it can hurt your combined debt-to-income ratio.
You are not required to apply for a mortgage with your spouse if you are married. Should your spouse have poor credit, no income or significant debt, you may be able to get better rates by applying as an individual. Unless the applying spouse has a very large income, however, this will likely result in the lender approving a smaller loan amount than they would for a dual-income application.
If you or your spouse are approved for a mortgage as an individual, some lenders will require that the other spouse sign a form acknowledging an understanding of the debt that their partner is assuming.
Remember that building or rebuilding credit is a time-consuming process that could take months or even a year. If applying as an individual, you and your spouse must decide if you will compromise on a less expensive home in the short term or hold off on buying until the partner with low credit or income improves their position.
The state in which you purchase a home also affects how your mortgage will be assessed. If you live in the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin, income and debts accrued by an individual during their marriage become assets or debts of the couple. Alaska and Tennessee allow couples to opt in to the community property arrangement.
If you are married and applying for a mortgage individually in a community property state, the lender will nonetheless assess your spouse’s income, debt and major credit events, such as a bankruptcy. In addition to community property states, if you are applying for a U.S. Federal Housing Administration (FHA) loan or U.S. Department of Veterans Affairs (VA) loan, lenders will look at both spouses’ financial histories.