When buying and financing a home with someone else, everyone on the loan application will be evaluated. For instance, say a couple decides to buy a house and apply for a loan. Each person is approved individually and both must be approved before the loan can go through. Let’s say one person makes $5,000 per month and the other $6,000. The lender will add those two together when calculating qualifying income. Yet both must adhere to other employment requirements. Both must be employed for at least two years, for example. If one person has two years but the other only six months, the person with only six months on the job won’t be able to use that income to help qualify.
Okay, but what if they both have been on the job for two years or more and the income on the application can be used, what happens if one person’s credit score is too low? What happens if a spouse or partner has bad credit, can the other person get a mortgage? Yes, but perhaps not in the way some people think. Credit scores are three digit numbers ranging from 300 to 850 and different loan programs can have different credit score minimums. For example, a lender might have a loan for an investment property and the minimum credit score with a 20% down payment is 660. One borrower has a score of 750 while the other a score of 580. Some think that lenders average the credit scores together but that’s not the case. Lenders do typically use the lower of the two representative scores. In this example, the qualifying score would be 580, below the 660 minimum. The loan cannot be approved.
However, if one borrower has enough income to qualify individually without the need for additional income from the borrower with the 580 score, they can keep the person with the lower scores off the loan application as long as the remaining borrower can qualify on the monthly credit obligations of the person with the low score. If someone can handle all monthly debts of both borrowers and still qualify for the new mortgage, the loan can still be approved, regardless of the lower score.
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