Buying a house with your significant other comes with a lot of new responsibilities, discussions, and possibly arguments if your partner’s credit score is not so good.
Before you even move together, it may be wise to compare your credit to avoid disappointment later when you apply for a mortgage.
Checking Your Credit Scores
There is nothing wrong with asking your partner to check their credit score long before you even plan to apply for a mortgage. It is best to find out sooner rather than later so you will know what plan of action needs to be taken next, especially if you are hoping for a certain loan amount. If your partner’s credit score is poor (typically 619 and below), your chances of receiving the loan amount you are hoping for is slim. An excellent credit score is 720 and higher with the highest score being 900. That is when your chances of getting what you want are very high.
Identify The Habits
If your partner’s score is poor, try to identify where they went wrong so you can work towards fixing it.
Do they have spending problems? If so, talk to them about changing their credit limit so they are not as tempted to spend. Set a monthly budget for things like what to spend on groceries, personal items, date nights, etc. That way you can track both of your spending better and it will give you practice for when you have a mortgage payment involved.
Do they make late payments? Get them into the habit of writing all their expenses down and when they need to be paid so they are not as likely to forget.
Do they have debt? If they have student loans (which you may have too) work towards paying them off before applying for a mortgage. Even if you do not pay off all of it, set a number in mind, write it down, and try to reach that goal. Each step you make towards that goal, you are one step closer to being successful homeowners.
If they have lines of credit that need to be paid every month, lowering the amount every month is possible if they ask the lender. They will be paying it over a larger period of time, but with lower installments it will be easier to budget for things for your house.
Joint Bank Accounts
Just because you have joined your bank accounts, does not mean that improves your partner’s score. Your scores are still individually accessed when you apply for a mortgage, therefore their score could affect what loan amount you are approved for and what interest rates you will be subject too.
Perhaps your partner has come across a raise and has higher income now. Prove to your lender their new income can help cover costs now and their bad credit score will not impact future payments.
If their score is damaged beyond repair, something to consider may be applying for a loan on your own. Your loan amount will still be lower because, technically, you have one income. But, that way, if your credit score is good, you will not be paying high interest rates and you know you can make payments on time. You can still receive help with payments, you just have to set your partner up with payment installments to your bank account. Get the agreement in writing as to when they will pay you and how much.
You could also ask for another co-signer with good credit to help you and have a written agreement with them as well. But remember, if you should ever default on a payment, your co-signer will be responsible and problems could arise.
Should you decide to keep your accounts separate for now, there is nothing wrong with that either. Wait until their score improves and you know you can rely on them to help make payments together.
Lower Debt-To-Income Ratio
Your debt-to-income ratio is how much of your income is going to paying off debts, like loans and your credit card. Add up all your monthly expenses compared to what you are making and see what is leftover. If it is too low, how do you expect to make mortgage payments? Work together to improve your debt-to-income ratio, since that will be a factor when you apply for a mortgage. You will also undergo the stress test, which will help determine how much house you can really afford. You may be disappointed with the results if you do not try to improve your ratio score.
One thing you could do in order to save up more money is, trying not to have as many accounts open, especially if your partner has spending habits they need to reduce. You do not necessarily have to close them, but try to limit yourselves to one account.
Being Approved With Poor Credit
Remember, even if you have good credit and your partner does not and you apply for a mortgage together, the bank still does not have to approve you. If they decide you guys are a high-risk borrower and do not approve you, there are still ways to seek a mortgage loan, though it will be through a non-traditional lender.
Non-traditional lenders are becoming pretty popular for young first-time home buyers. Mortgage lenders will help shop around for the best mortgage options and interest rates that best suit your needs, whereas banks can only offer you what they have.
Long before you decide you want to take the next step with your partner and buy a house together, it is best to check your credit scores. If their credit score is poor, trying to improve it before taking that big step could be your best option, especially when you are hoping to be approved for a certain amount and do not want to pay high interest rates. Identify their habits beforehand and determine why their score is so poor, and how it can be changed. A change will not happen overnight. Be patient and give it time, even if that means postponing your ideal date to buy a house. It will definitely pay off in the end as your reputation with your lender improves and it will make the home buying process easier on you both.
