Getting a joint mortgage? Here’s how your credit score factors in
A joint mortgage is when more than one person's name is on the home loan. Getting this type of mortgage can be beneficial if you're looking to obtain equal ownership of the home you want to buy, as well as if you want to split the down payment cost and monthly mortgage payment.
That said, when more people’s names are added to the loan, there are more factors and risks to consider, like additional debt or the other person having a lower credit score. You can get one with friends, a relative, a romantic partner or anyone else for that matter but you’ll want to make sure it’s the best idea for your circumstances.
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How do you qualify for a joint mortgage?
Qualifying for a joint mortgage requires that both applicants' financial situations be reviewed. Below is a brief overview of what most lenders look for.
- Combined income: Two incomes could help you qualify for a home at a higher price point.
- Debt-to-income ratio: The minimum payment amounts for both of your debts will be considered when applying for this type of mortgage. Most lenders recommend a debt-to-income ratio of no more than 43%. This means if you and a partner make $70,000 per year and want to apply for a joint mortgage, your minimum monthly debt payments — including your new mortgage payment — should be no more than $2,508.
- Credit history: When two or more people apply for a mortgage together, the lender will consider each person’s credit and often use the score on the lower end to approve or deny the mortgage. Like with any other loan, if you have late payment history or defaulted accounts on your credit report, this could impact your approval rate.
- Assets and savings: The nice thing about applying for a joint mortgage is that both you and the other person's assets and savings will be considered even if they are not joint assets. This means if a married couple wants to apply for a home loan and each has their own savings to consider for the down payment, this could increase your approval amount since more money can be put down on a home.
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Which credit score is needed for a joint mortgage?
If you decide on a joint mortgage, both you and the other person's credit scores will come into play. Lenders will typically review each of your credit scores from all three of the major credit bureaus and see which one is the "lower middle" score.
This means if your three credit scores are 750, 725 and 715, and your partner's scores are 699, 680 and 674, lenders will take both of your middle scores — 725 and 680 — and use the lower of the two middle scores, which in this case is 680. It's important to make sure that both you and your partner have good to excellent credit scores all-around to qualify for the best mortgage rate.
If you do find that one of you has bad credit though, consider an alternative option, like finding a different cosigner or applying for a single-applicant mortgage instead. Keep in mind that with a single-applicant mortgage, this means you won't be able to use the other person's income or assets to qualify for your home loan.
If you know you may want to get a joint mortgage, it's best to start checking your credit scores early and take steps to improve the lower score. This could mean paying down existing debt, waiting for hard inquiries and delinquent accounts to fall off your credit report or trying a secured credit card to build some positive payment history.
If you choose to go with a cosigner for the time being, you can try to find a relative with really good credit to help you qualify. And to release the cosigner, you can always refinance your home down the line. Check out Credible to prequalify for a mortgage refinance in just minutes and compare the best rates from different lenders.
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Is it better to apply for a mortgage jointly?
If you're in a committed relationship or thinking about getting a joint mortgage with a friend, relative or real estate partner, there are a lot of benefits to applying with another person. You'll be able to combine incomes, which could increase your approval amount and you'll have the option to use more savings and assets to make a larger down payment.
On the flip side, if you or the other person doesn’t have a good credit score, this could hinder your chances of getting a mortgage together at all. Or you could get stuck with a higher interest rate, meaning you'd pay thousands of extra dollars on your loan over time.
While there's always the option to refinance your home eventually to save money on interest, getting a joint mortgage may not be the best decision for you right now if you or the other person is not prepared financially or if one of you has a very low credit score. Visit Credible to get in touch with an experienced loan officer to get your mortgage questions answered so you can make an informed decision that’s best for you.
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