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Profile picture for nmaynard

Do both spouses need good credit to qualify for an FHA or RD mortgage?

I have fair credit (654) but my husband's credit recently dropped to 565 (a medical bill went to the credit bureaus shortly before we paid it...).  We'd like to become first time home buyers.  Is it possible to qualify for an FHA/RD mortgage with these credit scores?  Also, is it better to go through a mortgage broker or directly through a lender (when seeking these types of loans)?  Thanks for the advice!
  • March 18 2010 - Portland
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Answers (12)

The programs use the lowest of the credit scores.  If you have sufficient income and employment history to qualify on your own, then the lender will not consider your husband's credit score.  You will need to qualify with your husband's debts also.  If not, you can use a non-occupant co-signer for the FHA loan.  USDA does not allow co-signers.
  • March 18 2010
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Profile picture for wetdawgs
If you wish to use both incomes to qualify, then the lower score will count.  If you wish to qualify on your income alone, then the lower score won't be part of the process.

  • March 18 2010
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As stated above you have to use the lowest score to qualify.  If you do not qualify with just your income, FHA allows a non-occupant co-borrower.  If you had a relative that was willing and able, you would be able to use their income and credit score to qualify.  This is an option a few of my clients have used with success.

For your second question:  Mortgage Brokers find a lender for you and take a fee to do so.  This usually means that they will have a higher Interest Rate because they are compensated by YSP (Yeild Spread Premium).  A lender, or atleast a someone who is a correspondent lender is, for the most part, your best option. Click Here for an article that explains Mortgage Brokers, and Banks.

Good Luck!
  • March 29 2010
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 This usually means that they will have a higher Interest Rate because they are compensated by YSP (Yeild Spread Premium).

Travis, you sure you have been in the business for 6 years and not 6 weeks?
  • March 29 2010
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Now that Travis brought this to the forefront, I would like to add that while you can be the only one on the loan, USDA must consider the entire household income (RD has maximum income limits),   

I would like to encourage anyone considered RD financing this spring to select a lender with significant RD experience.  With the uncertanity of when RD's allocation will be 'spent', this is not a time to risk losing out on the program.
  • March 29 2010
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Mr. Branch...In Georgia...How are Mortgage Brokers compensated?  YSP is not a form of compensation for Mortgage Brokers?  Please enlighten us, as you have criticized my answer, but did not leave one yourself..  Thank you for your input.
  • March 30 2010
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Surely, Mortgage Brokers have the option to charge upfront fees, collect YSP, or a combination of both. If someone wanted a no origination loan or complete no closing cost loan, the only way to do that is to use YSP and higher rate. If a correspondent or direct lender were structuring a loan with no origination or no closing costs, you would also use premium pricing which is no different. You are implying it will cost more to use a Broker than a lender because you are a lender. I would direct you to the top 5 Zillow lenders of which 3 are Brokers. If I were to quote an 80% LTV, 740 score 30 Yr loan, 350K, it would be 4.75% and an origination fee of $2275, or .65%, and that loan is par and pays no YSP.
  • March 30 2010
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Profile picture for Murphy Team
Just had an RD loan application where the combination of income put the buyers over the qualifying range. I presume, but cannot be sure, that they use both borrowers to qulaify.
  • May 28 2011
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There have been some very good points made here, I will add a few not mentioned and try not to be repetitive of what has already been said.

In Maine Mortgage brokers can no longer make money off the Yield Spread Premium (YSP) but rather are compensated the same no matter what the rate is. I thought this was part of the Dodd Frank bill that recently passed but it may only be a state issue.

Secondly, if you don't HAVE to buy in Portland Maine but are open to looking in the surrounding towns you can apply for a RD Direct loan rather than an RD Guarantee. The RD Direct allows flexibility for lower credit scores but isn't allowed in towns with populations over a certain threshold. RD Direct is also tougher on income limitations since it is founded by the government directly and is designed to encourage home ownership for those who may not be able to qualify in the secondary market.

FHA doesn't require as high of credit scores to qualify and as someone mentioned you can have a non-owner occupant co-signer. The big difference between RD and FHA is that RD is 100% financing and has a funding fee rather than monthly mortgage insurance. FHA requires 3.5% down and has a hefty monthly mortgage insurance premium.
  • June 22 2011
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Profile picture for jebus51881
I had a median credit score of 659 and my spouse's median was like 489.  I got an FHA loan no problem but she wasn't allowed to be on the mortgage.  Thankfully my income was high enough that I could still be approved for the loan anyway.  But I've had perfect credit for 6 years and with my problems now 6 and half years back and about to come off my credit report the lender didn't see me as a risk.  But if both spouses will be on a mortgage I'm pretty sure they both have to meet the minimum score guidelines. 
  • June 22 2011
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Profile picture for barb10john
The lowest credit score counts - yours, or your husband's.  Secondly, a good mortgage broker can link you to a good lender - don't worry about YSP costs in Maine.  They are insignificant now.  My friend's wife had a lower credit score; he found the best terms to finance his dream home through Dan Carey in ME.

  • April 29 2012
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  • January 13 2014
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