Getting a joint mortgage? Here’s how your credit score takes into account
A joint mortgage occurs when more than one person’s name appears on the mortgage. Getting this type of mortgage can be beneficial if you are looking to secure equal ownership of the home you want to buy, as well as if you want to split the cost of the down payment and the monthly mortgage payment.
Having said that, when more names of people are added to the loan, there are more factors and risks to consider, such as additional debt or someone else with a lower credit rating. You can have one with friends, a relative, a romantic partner, or anyone else, but you’ll want to make sure it’s the best idea for your situation.
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How do you qualify for a joint mortgage?
To be eligible for a joint mortgage, the financial situation of both applicants must be considered. Here’s a quick rundown of what most lenders are looking for.
- Combined income: Two incomes could help you qualify for a higher priced home.
- Debt-to-income ratio: The minimum payment amounts for your two debts will be taken into account when applying for this type of mortgage. Most lenders recommend a debt-to-income ratio of no more than 43%. This means that if you and a partner earn $ 70,000 a year and you want to apply for a joint mortgage, your minimum monthly debt payments – including your new mortgage payment – should not exceed $ 2,508.
- Credit history: When two or more people apply for a mortgage together, the lender will consider each person’s credit and will often use the lower score to approve or decline the mortgage. As with any other loan, if you have a history of late payments or defaulted accounts on your credit report, it could impact your approval rate.
- Assets and savings: The good thing about a joint mortgage application is that you and the other person’s assets and savings will be considered even though they are not joint assets. This means that if a married couple want to apply for a home loan and each has their own savings to consider for the down payment, it could increase your approval amount as more money can be put on a house.
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What credit score is needed for a joint mortgage?
If you decide on a joint mortgage, you and the other person’s credit scores will come into play. Lenders will usually look at each of your credit scores from the three major credit bureaus and see which one is the “lower middle” score. .
This means that if your three credit scores are 750, 725, and 715 and your partner’s scores are 699, 680, and 674, the lenders will take your two average scores – 725 and 680 – and use the lower that case is 680. It’s important to make sure that you and your partner both have good to great credit scores to get the best mortgage rate.
If you find that one of you has bad credit, consider another option, such as finding another co-signer or applying for a single-applicant mortgage instead. Keep in mind that with a single-applicant mortgage, that 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 might want to get a joint mortgage, it’s best to start checking your credit scores early and take steps to improve the lower score. It could mean paying off existing debt, waiting for tough inquiries and overdue accounts to disappear from your credit report, or trying a secured credit card to establish a positive payment history.
If you choose to go with a co-signer at the moment, you can try to find a relative with very good credit to help you qualify. And to free the co-signer, you can always refinance your home down the line. Consult Credible to pre-qualify for mortgage refinance in minutes and compare the best rates from different lenders.
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Is It Better To Apply For A Joint Mortgage?
If you are in a committed relationship or are considering getting a joint mortgage with a friend, relative, or real estate partner, there are a lot of benefits to applying with someone else. You will be able to combine the income, which could increase your approval amount, and you will have the opportunity to use more savings and assets to make a larger down payment.
On the other hand, if you or the other person doesn’t have a good credit rating, it could hurt your chances of getting a mortgage. Or you could end up with a higher interest rate, which means you would be paying thousands of extra dollars on your loan over time.
While it’s always possible to refinance your home to potentially save money on interest, getting a joint mortgage may not be the best decision for you right now if you or the other person isn’t ready. financially or if either of you have very poor credit. Goal. Visit Credible to connect 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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