Does Being an Authorized User Affect Mortgage Approval?

How Does the Mortgage Approval Process Work?

When you begin looking for a mortgage loan, you'll start with preapproval. In this stage, lenders will review your credit and financial information to estimate your chances of approval, as well as how much you might qualify to borrow and at what interest rate. (You may also seek mortgage prequalification even earlier to get a rough estimate of your eligibility, but prequalifying is not a required step in the mortgage approval process.)

Mortgage lenders look at several factors to determine whether to lend to you, including your income and expenses, cash reserves, existing debt, credit report and credit scores. Your credit history, and payment history in particular, is a key component of this process because it demonstrates your ability to make debt payments on time.

It's best to get a preapproval letter from several lenders so you can compare rates and terms. Once you find a home, you'll submit an official mortgage application to the lender you've chosen. At this point, the lender will check your credit again to see if anything has changed. They typically also do this shortly before closing on the loan.

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Learn more: How to Shop for a Mortgage

How Being an Authorized User May Impact Getting a Mortgage

Being an authorized user can strengthen your credit scores if the main cardholder's account has a history of on-time payments. But it isn't as helpful when applying for new credit.

Here's why: Since authorized users aren't ultimately responsible for making account payments to the credit card issuer each month, a mortgage lender may be less likely to view any resulting credit score boost as an accurate measure of your own credit management skills.

The automated underwriting guide for conventional loans backed by Fannie Mae, for example, instructs lenders to determine whether an applicant with several authorized user accounts—and minimal accounts of their own—is making payments toward the debt. For manually underwritten Fannie Mae-backed loans, an authorized user account can only be taken into consideration if the applicant can show documentation that they've been the primary payer on the account for 12 months before applying.

Additionally, if the authorized user shows they've made monthly payments on the account, those payments will be included in their debt-to-income ratio (DTI), which is an important factor in mortgage underwriting. That would increase your DTI, and the higher your DTI, the lower the monthly mortgage payment you'll qualify for, which limits how much you can borrow. If your DTI is too high, you may not qualify for a mortgage at all.

Tip: Calculate your DTI with and without authorized user payments before moving forward with a mortgage application. Consider removing yourself as an authorized user if you think including those accounts in your credit history could jeopardize your chances of approval.

How to Get a Mortgage

Make your mortgage application as robust as possible by taking these steps:

1. Improve Your Credit Score

Aiming for a good or excellent credit score will not only help you get approved for a mortgage, but can also score you a lower interest rate. To get your credit ready for a mortgage application, first check your credit scores for free through Experian to see where you stand.

From there, look for areas that need your attention. You have the right to dispute any information you find on your credit report you believe to be erroneous. It's also a good idea to get caught up on delinquent accounts, pay off collection accounts, pay down credit card balances and avoid applying for new credit unless absolutely necessary.

Learn more: How to Build Credit to Buy a House

2. Save for a Down Payment

While a 20% down payment is often cited as the gold standard for mortgage loans, many borrowers make down payments smaller than that. Lenders regularly accept down payments of 3% or 5%, and there are mortgage programs that require no down payment at all. The down payment you're required to make will depend largely on the type of mortgage you pursue.

That said, the higher your down payment, the higher your chances of getting approved for a loan with favorable terms, and the lower your mortgage payment once you do get a loan. Larger down payments will likely also help you avoid having to pay mortgage insurance. Save for a down payment by increasing your income or cutting back on expenses and sending your savings to a separate down payment fund.

Learn more: How Do Down Payments Work?

3. Shop Around

When seeking mortgage prequalification and preapproval, submit your details to multiple lenders so that you can compare offers and opt for the best loan terms you qualify for. You'll first need to decide on the mortgage type, repayment term, down payment and interest rate type—fixed or adjustable—that you want. That way, you can get estimates from lenders based on the same factors and compare them more directly.

Once you've received offers, look closely at the loan amount, interest rate, closing costs and estimated monthly payment to understand how much the mortgage will cost you at closing and over time.

Learn more: Current Mortgage Rates: What Will You Pay?

Frequently Asked Questions

The Bottom Line

If you're an authorized user on another person's credit account, take the time to determine how that might affect your credit history and DTI before starting the mortgage application process. You may decide the best course of action is to remove yourself as an authorized user before applying for a mortgage. From there, you can take steps to improve your credit and lower your DTI in other ways to ensure you are in the best position possible to get a mortgage.