But what happens if your better half has poor or nonexistent credit? Unfortunately, your significant other’s subpar credit score can deflate your joint homeownership dreams—even if your own score is stellar. Learn more about how lenders evaluate joint mortgage applications, how to improve your partner’s credit score, and other ways to buy a home with bad credit.
How Do Joint Mortgage Applications Work?
The ability to meet a lender’s qualifications is one of the key things to consider before you buy a home. That means if you’re buying with a partner, you’ll both have to do some self-assessment. For joint mortgage applications, lenders look at each co-borrower’s entire profile rather than pick and choose each applicant’s best attributes. In other words, the lender will count your combined incomes, but it will also review both of your credit scores. And here’s the real gut punch: Some lenders base their lending decisions and terms on the lower of the two credit scores. In that case, if your partner’s credit is awful, it could put your plans in jeopardy even though you have two incomes. Your only real options might be to put your homebuying plans on hold until your partner can improve their score, or work with a mortgage lender that specializes in bad credit.
How Your Partner Can Improve Their Credit Score
Remember that credit scores can be affected by many factors, some of which are outside your partner’s control. For example, emergencies, a lack of access to credit products, and discriminatory lending practices could all result in a lower score or a shorter credit history. If you’re committed to buying a home together, you’ll need to take a “for better or for worse” approach to your finances and find ways to help your partner improve their credit. Here are some ideas.
Clean Up Credit Report Errors
The first step is to make sure the bad credit score is actually warranted. Everyone should periodically review their credit reports to check for potential errors, such as a creditor saying you owe money on an account that you paid. Plus, you want to make sure no fraudulent accounts have been opened in your partner’s name, potentially leading to the negative score. Start by pulling your free credit reports from each of the three credit bureaus—Experian, Equifax and TransUnion—via AnnualCreditReport.com. If there are mistakes or anything is amiss, follow the corresponding bureau’s steps for fixing the credit report.
Pay Down Existing Debts
It might be worth using some of that down payment money you’ve saved up to pay down large credit card balances. That’s because a key element of the credit score calculation is credit utilization, or how much available credit is being used. If your partner has a $5,000 credit limit and a $4,000 balance, they’re using 80% of their credit line. If you can make a lump-sum payment to get the utilization below 30% and as close to zero as possible (a threshold that experts say is ideal), they should see an increase in their credit score within a couple of months.
Add Your Partner as an Authorized User
Payment history is the top factor in determining one’s credit score, which is why missed payments or delinquencies can do a lot of damage to your partner’s credit. To help establish a good pattern of payment behavior, you might consider adding your partner onto one of your credit card accounts as an authorized user. This will let them piggy back on your (hopefully) strong credit.
Suggest That Your Partner Open a Secured Credit Card
If your partner’s credit is so poor that they can’t qualify for a regular card, a secured credit card can help them rebuild their credit reputation. They’ll use a cash deposit as collateral in the amount of the credit line, usually a couple of hundred dollars. From there, your partner should make small charges on the card and pay off the balance in full each month. Over time, as they make consistent payments, they should start to see their credit score improve.
Alternatives to Buying a Home With a Partner
If buying a home together with a traditional mortgage isn’t in the cards, there are a couple of other options to consider.
Apply as a Single Applicant
If you think you have enough income to qualify for a loan on your own, you can go ahead and apply solo. Remember that you’ll generally need a debt-to-income ratio of 43% or less to qualify for most loan programs—meaning that all of your combined monthly bills can’t be more than 43% of your gross monthly income. If you’re coming up short, you may have to look at homes in lower price ranges to find one that’s affordable on paper.
Wait, Then Try Again
Improving credit doesn’t happen overnight, and everyone’s time line can look different. Depending on the amount of improvement your partner has to make to reach good credit territory, it may take a few months, a year, or more. It might be worth contacting a credit counselor to get some guidance and put together a plan of action. Or in some cases, such as if you only need to increase by a few points to get approved, a lender may be able to make a “rapid rescore” work to your advantage.
Get a Bad Credit Mortgage and Refinance When Credit Improves
If you’re willing to accept a higher interest rate, you could work with lenders that specialize in loans for people with bad credit. Just be very careful if you go this route, because even if you intend to make credit improvements and refinance into a better mortgage down the line, life circumstances could prevent that from happening. Be sure that any alternative loan you consider has terms that you can afford and live with in the long term.
