Your credit score can have a major impact on the mortgage loan rate you receive when qualifying for a home loan. However, when a married couple starts the home buying process, the effects of credit scores can get a bit more complicated.
According to CNNMoney, when most married couples enter into a home buying agreement, they choose to take on the financial burden together with both their names and credit scores. But if your spouse has a spotty credit history that threatens to hike up the rate you receive, it could pay to leave them off of the mortgage agreement.
When qualifying for a mortgage a lender will determine the terms of the loan on a number of financial variables, including:
• Debt-to-income ratios
• Credit scores
Leaving your spouse with a low credit score off of a mortgage can result in the bank evaluating the loan application based on a higher credit score. However, there are some downsides. If you exclude your spouse and their credit report from the mortgage, you also exclude their income. Due to that, the size of the loan you might get will likely be much smaller.
If the spouse with the low credit score is also the one with the higher income, then it might be time to take a step back. If you’ve seen the mortgage your household can qualify for, but do not like the results, you might want to take some time to improve your credit scores. There are many ways to get the process started, such as:
• Paying down credit card debt
• Reducing credit card usage
• Monitoring credit report for errors
While fixing flaws in your credit score can be a burden, it does have extra benefits. Once you boost your score, not only will you be able to qualify for more favorable mortgage terms, but qualifying for other credit, such as getting a credit card or a car loan, can get much easier as well.
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