Can I Buy a House if My Spouse Has Bad Credit?

Can I Buy a House if My Spouse Has Bad Credit?

If your spouse has bad credit, don't fret. You may still be able to buy a house, but your options might be more limited.

You can apply for a mortgage as a single applicant or, as in the case of many couples, as joint applicants. There are pros and cons to each approach, but if your spouse has bad credit or a high debt-to-income ratio (DTI), a joint application could be denied. Even if your joint application is approved, you may end up with a higher interest rate, which can add tens of thousands of dollars to your loan over the years.

If your spouse has bad credit, you might apply for a loan in your name only. Keep in mind that while this fixes the credit problem, it also takes your spouse's income out of the equation. Unless you're the sole earner, applying individually could limit the size of the loan you qualify for.

Whose Credit Score Is Used on a Joint Mortgage?

When you apply for a joint mortgage, the lender looks at both borrowers' FICO^® Scores^Θ from each of the three credit bureaus (Experian, TransUnion and Equifax). However, the borrower with lower credit scores carries more weight; lenders use the lower middle score of the two borrowers when considering a joint mortgage application.For example, say your scores are 730, 722 and 715. Your spouse's are 675, 660 and 654. Even though your middle score is 722, lenders would use your spouse's middle score of 660 when looking at your application.

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Tips for Buying a House if Your Spouse Has Bad Credit

Just because your spouse has bad credit doesn't mean you can't buy a house. There are a few things you can do to get a mortgage with bad credit:

• Help your spouse lower their DTI. Credit score isn't the only measure lenders consider. You may improve your joint application by focusing on lowering your partner's DTI. They can do this by paying down debt in their name or increasing their income. Lowering your household DTI will also help if you're applying for a joint mortgage.
• Make a bigger down payment. If you're skilled at saving, consider making a bigger down payment. This reduces the size of the mortgage you'll need, lowering the lender's risk—and potentially your interest rate.
• Look into first-time homebuyer programs. Many lenders offer loans and grants aimed at first-time homebuyers. These programs often come with more lenient credit and down payment requirements.
• Leave your spouse off the application. If your income is high enough to qualify for a mortgage on your own, you can always leave your spouse off the application. Doing so may help you qualify for a better interest rate if your spouse's credit score isn't great.
• Add a cosigner with good credit. On the other hand, if your income isn't enough to qualify for a loan but you don't want your spouse's bad credit to hurt your application, you can always ask someone else to cosign your mortgage. A cosigner's good credit can bolster your application, and they agree to share financial responsibility for the loan.

How to Improve Credit Before Buying a House

Regardless of whose name is on the mortgage application, both you and your spouse can benefit from improving your credit scores before buying a house. Here's how:

• Review your credit reports. Errors on your (or your spouse's) credit reports can drag down your scores, so be sure to check your credit reports for accuracy. You have the right to dispute any mistakes you find.
• Pay bills on time. Payment history accounts for 35% of your FICO^® Score, making it the biggest scoring factor. If you struggle to pay on time, enroll in autopay to ensure you don't miss any future payments.
• Don't open new credit accounts. When you apply for a new credit account, the lender typically runs a hard credit inquiry on your credit report. This can temporarily lower your score by a few points, and the more frequently it happens, the worse the effect in most cases. If you're trying to improve your credit, refrain from opening any new accounts in the months leading up to a mortgage application.
• Lower your credit utilization rate. The lower the amount of available credit you use on revolving credit such as credit cards, the better for your credit score. If you have high credit card balances, focus on paying them down. Another tactic is to make multiple credit card payments throughout the month to keep your balance low.
• Add your spouse as an authorized user. If you're trying to help your spouse improve their credit, consider adding them as an authorized user on your credit card. If you have a positive payment history and a low credit utilization rate, your spouse's score can benefit from your good habits.

The Bottom Line

Buying a house with your partner is a major financial and personal milestone, but bad credit can make it more difficult. If your spouse's credit isn't ideal, consider options like applying as a single applicant, helping your spouse improve their credit or taking advantage of first-time homebuyer programs. While good credit definitely helps when it comes to buying a house, you don't need two perfect scores to make this dream come true.

If you're ready to start shopping for a home, begin by checking your FICO^® Score with Experian for free. Knowing where your scores stand can help you approach the mortgage loan process with clarity.