Wednesday, August 4, 2010

How does my spouses credit affect mine?

This is a commonly asked question and we have to gone to Valerie McKay from Lendsmart Mortgage for an answer:

Q: Could one spouse's bad credit negatively affect the other?
A: Each borrower has 3 credit scores.  Lenders evaluate based on the middle credit score for the lowest scoring borrower.  Credit scores can affect the interest rate available for that borrower.  Therefore, a spouse’s bad credit can potentially result in a higher interest rate.  In some cases, a strategy may be to qualify with only the strong credit borrower, as long as that borrower has the income to support the payment according to the lender’s guidelines.

Q: Can one spouse's low score negatively affect the couple's chances of securing a mortgage?
A: Yes, late payments, bankruptcy, short sale or foreclosures can all affect when a person is eligible to purchase a home.  Both conventional and FHA have guidelines as to how long a person has to wait in order to qualify if they have one of the above mentioned items on their credit.  Depending on the loan program, a person with a foreclosure may have to wait up to 5 - 7 years before they are eligible to qualify for a home loan.

Q: Does the lender use both people as a measure of creditworthiness, or is it possible to focus on the spouse with the better score?
A: If both people are on the application for a home loan then the lender will look at the lowest middle score of the borrowers on the application, rather than focus on the spouse with the better score.  Depending on the loan program, there may be a higher than market rate due to that lower middle score.

Q: How can credit be repaired or enhanced?
A: If you are looking at purchasing in the next 6-12 months, you should contact a trusted loan officer for a pre-approval.  A loan officer will be able to give you recommendations to help improve your credit scores over the short term or refer you to a reputable credit repair service.

Valerie McKay
Loan Officer
Lendsmart Mortgage, LLC
651-247-9982

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