How To Buy A House If Your Spouse Has Bad Credit

Can you actually buy a house in Boston (or anywhere) if your spouse has bad credit?

The short answer is… Yes, maybe.

My fiance and I decided to buy after living in the same place for five years of paying (very cheap) rent. If you’ve been reading this blog it’s no surprise that it’s a great time to buy a new home in Boston (for almost anyone).  Mortgage rates are really low. And depending where you’re looking, there may significant amount of inventory to choose from (just not in Boston proper). We knew before you even start looking at homes, we needed to get preapproved.

So we had to have “the talk”. The credit talk. And I had to admit my credit was… we’ll call it “less than perfect”. Ok, so I weighed more than my credit score. And I think it’s like the SAT’s. You get 100 points just for spelling your name right. Yeah. I made some mistakes when I was younger. I guess that Red Sox beach towel and the $40 I saved at Banana Republic with a new charge card wasn’t worth it. So we had to figure out how and what we would qualify for. We looked into our options.

Joint vs. Single-Applicant Mortgage

While we make roughly about the same amount of money (she’s a special needs teacher in a ritzy South Shore town, I’m a fabulous real estate agent), my credit was much lower (Ok, we discussed that. Moving on.) We faced a choice of whether to have her get a mortgage by herself or apply jointly. Since we needed a high credit score, we decided to apply together but not before some major work to my credit needed to be done.

If this is familiar, you’ll be happy to know it was possible. We close on our (day)dream home in April.

Oh, the major work I mentioned? Ok… here’s what we had to do:

First – get the basics of mortgage loans down. If you need the extra money for your mortgage get a same day loan. Start by watching our short tutorial video “9 Steps To Obtain the Right Home Loan For You“.

Then Improve Your Credit. Quickly, not so easily.

The first thing lenders look at is credit scores so improve yours. Make sure your report is error free. (Mine was…darn it). If there are inaccuracies, contact the THREE credit bureaus and correct them immediately. They take a while to be cleared up so make sure you get contact names and direct numbers to everyone you talk to at the credit bureaus.

If you have some work to do, start now. If you have small, old collections…PAY THEM! Old Verizon phone bill? Pay it. Hospital bill when you sprained you ankle? PAY IT! Try to get rid of all the negative stuff first.

30% of your credit score is credit limit. Keep your current lines of credit open but pay down all your credit cards to below 20% of the credit limit and your score will go up in the next 30-60 days.

Those three things won’t completely fix your credit but it will give it a boost and creditors will like to see that you’re not maxed out.

Now, Buy  House!

Even with bad credit, there is a possibility of making yourself attractive to lenders by setting the numbers in your favor. Here are a few ways:

1. Down Payment:  No secret. Money talks. And if you built a sizable down payment, it says “Here’s how serious I am about this purchase.” Besides lowering your monthly payments, it saves you on PMI (private mortgage insurance) if you have more than 20% down. Now, personally, I would suggest putting that toward your debt but for the sake of the argument, go all in.
2. Debt to Income Ratio: Lenders are not likely to write a check to borrowers already over their head. Make sure your monthly payments are much less than 30% of your gross home salary. Sell that fancy car and get reliable transportation (or public, even better). Get rid of the fancy extras. Better yet, eliminate and simplify everything you can before you apply.  Our mortgage affordability worksheet is a great place to start to help you understand what you can afford and what a bank will loan you for your home.
3. Loan to Value Ratio: You’ll hear agents and mortgage brokers talking about Loan to Value or LTV ratios. That’s the mortgage loan amount divided by the appraised value of the property you’re considering to buy.  Using a good buyer agent who knows the local market where you are looking can help you find a great home and negotiate down the price to buy a house below market value.

Getting these things in order and combine them with what lenders are looking for, you can not only get approved but maybe even get a great mortgage rate. It was our blueprint that we followed and, come April, we will be homeowners!

And – I will be asking all of you to help moving so be prepared!  🙂