Bad credit marries good credit

Here's the scenario:

The credit score on the soon-to-be newlywed is good at 760, but her soon-to-be husband will never qualify. They know they're a match made in heaven but for some reason their credit just doesn't jive. 

Why is this an issue? Because most people do not think about credit scores when they're looking for potential mates, even though this score can drastically determine the lifestyle and living standard they will enjoy. In most loan programs, loan officers look at the lower of the two scores. So, no matter how good she's been with her credit and debt management, he has been equally bad on the other side. This means loan officers go with the lower denominator.

Now what?

Then the questions start. Can he be on the loan? Can we use his income? Can we use his assets? All of these questions are important because it will determine the type of loan they can qualify for and ultimately the type of home they will live in. Expectations are high when you're about to get married.

Some basics

If you can't use the credit score, then you can't use the income of that person either. Same rule applies for assets. This mean she will now have to qualify for the entire loan by her self. This may not be possible since they were counting on both their incomes to make the payment.

Solution

It used to be that if she had sufficiently good credit we could do a low documentation loan with just her on the paper and get 100% financing. Now with lenders severely restricting the use of low documentation loan as well as loan-to-value ratio (LTV), this couple needs to be more creative. The other option would be to go subprime where LTV and income can be flexible for those with higher credit scores. However, she may not like this since she's being penalized for something she didn't do.

Credit and Debt Management

Potential borrowers in this kind of situation should take a long hard look at both their credit and debt management. The better long-term solution is for him to work on improving his credit score and both of them to come to an agreement on how to best manage debt. This way they can work on one of the most difficult issues in marriage BEFORE they get married.

Usually, something can be done within 6-8 months. However the bigger gain is that in the process they will have discussed an aspect of life that can be very important to their long-term marital health.

Resources

Arizona Mortgage Guru

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