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Planning for mortgage - questions...

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bschmidt
Established Member

Planning for mortgage - questions...

My wife and I are planning on buying a house in about a year or so.  We live in WI - a community property state, but may also end up in IL.  Her credit is not that great.  Last I checked it was about EQ 620.  Almost all of her stuff is old at this point though - medical collections and a charge off that are going to drop off this year or early next year.  She had a car loan with quite a few 60-90 days that we finally PIF 2 years ago.  We also settled an outstanding credit card ($3K) around the same time so that shows as settled on her report.  Both of those items will obviously show up on her report when we start applying.  Had I known about this site back then we would have handled that differently, but what's done is done.  She does have excellent payment history on her student loan and I have her as an AU on my credit card.  We've been married for a year and don't have any joint credit accounts at this point.  My credit is flawless payment wise, but I have high util (around 70% right now) that I'm working hard on paying off.  I should have most if not all of it gone by then.  I have a mortgage for a condo I've lived in for 6 years, 1 credit card (where my debt is), and two lines of credit (both of which have a $0 balance).  I also have a car loan with a relatively small balance ($6K).  All of those items are in my name only and there are no late payments on any of them.  Our household income is around $80K right now.  As long as my wife can get a job this fall our income should be about $100K by then, but she'll also have about $50K in student loan debt.  I'm thinking we'll buy a house for about $225-250K and put 10% down.

 

My question is pretty easy actually...  How will her credit history affect us when we're applying for mortgages?  Since hers is relatively bad and mine is/will be good, how does this work?  I'm assuming the income and debts are counted jointly, but not sure how they'll score the risk.  I could change my credit card to be a joint account, but I'm worried they'll look at her history and modify the terms (rate and/or credit limit).  Should I even bother getting a joint credit account with her beforehand?  I'm thinking not.  Just trying to put us in the best position possible while I still have some time.  Thanks in advance for your help!

Message 1 of 10
9 REPLIES 9
Anonymous
Not applicable

Re: Planning for mortgage - questions...

I just closed on my house two days ago.  Our loan officer told us that both of us had to have at least a 620 to be on the loan, but the terms would be based on the HIGHER credit score.  Here's our scenario:  I have a score in the low 700's.  Hers is around 670 BUT she had a bankruptcy 20 months ago.  She could not be on the loan with me as a result, but we could count her income towards my utilization ratio because we're married and live in the same house (it's a compensating factor that will let you go above the 36% guildeline of total debt to income ratio). 

 

At closing, the house was deeded in both names, as was the mortgate itself, but the actual note was in my name only so Im the one legally responsible for the loan. 

Message 2 of 10
hawkeye33
Regular Contributor

Re: Planning for mortgage - questions...

As far as how the mortgage lender will look at your scores, if you are both applying for the loan, they will take the lowest middle score of the three CRAs. In other words, if you had TU = 740, EX = 700 and EQ = 690; and your wife had TU = 615, EX = 625 and EQ = 680; they would take your wife's middle score of 625.

 

So if you want/need to app together, the goal would be for you to get your wife's scores up by the time you start apping. If she truly does have scores in the 620 range, then she should be able to apply for, and get, some sort of credit cards. My opinion would be that she should work on establishing one or two positive lines of credit (check credit unions) and use the cards but not carry a balance. You have a year before you start looking/applying, and a solid year with credit activity and perfect payment history might get some additional points.

 

She can also try writing goodwill letters, especially maybe to the auto financer where she had the 60 day and 90 day lates. There's a chance she might at least be able to get some of those removed, which could gain some additional points.

 

I don't think getting any joint accounts is going to necessarily help your situation more than her getting something on her own. And, as you said, there's a chance that it might impact your current credit limits if you change your existing CC account to a joint one.

 

You and your wife should check out the rebuilding forums on this site. There is a wealth of information on how to rebuild credit. It seems like you definitely have a chance to get where you need to be in a year.

Message 3 of 10
Anonymous
Not applicable

Re: Planning for mortgage - questions...

To Binks

 

I just want to clarify your statement so there is no confusion..

 

They went by the higher score because she could not be on the loan.  If she was on the loan they would have used her midscore as the judging factor. 

 

She was put on the deed, but not the mortgage.  The only way she can be on the mortgage is if she was a signer on it.  There is some paperwork that a spouse has to sign, but as you stated, she is not responsible for the mortgage or "on" the mortgage.  She may be listed as a contact or cleared to discuss it and such (not sure about that) but from any legal standpoint she is not on it.

 

As far as DTI, they do not count her income towards figuring DTI.  Your DTI would still have been based on your income, not hers.  But they allowed your DTI to be over the limit based on the compensating factors of uncountable income.

 

Not trying to get nitpicky, but someone looking for advice might have read your post and gotten an incorrect assesment of the situation as it was not very clear.  So, to wrap it up...

 

They always go by the lower of the 2 middle scores when approving a loan with multiple people on the loan

 

You can not be on the loan or have your income counted unless you are "on" the loan and go through full doc processing, etc.

 

You can be on the deed, and listed as a contact person on the loan, while not actually being a legal party to the loan

 

If there is undocumented income (such as a spouse not on the loan, etc) and the file is generally strong but slightly high on DTI, they can allow the loan to go ahead based on the compensating factor of undocumented income.  Understand that they have tightened up on this a bit so if the file is borderline, do not expect this to go through.  But if the rest of the file is good you stand a good chance.

Message 4 of 10
Anonymous
Not applicable

Re: Planning for mortgage - questions...

Mickie,

 

Thanks for clarifiying some of my comments.  You are, however, not entirely right in regards to my wife not being on the mortgage itself.  She IS listed on the Mortgage itself as the "borrower".  Im actually looking at my copy as I type.  I am the only person listed on the promissory note to the bank; she is listed as co-borrower on the mortgage instrument itself.  The closing agent said the bank would have no legal document if they excluded her from the mortgage instrument because she was listed on the deed and must be party to the mortgage.

 

Message 5 of 10
Anonymous
Not applicable

Re: Planning for mortgage - questions...

something is screwy with that.  You can not be a co-borrower and not part of the promisary note.  Also, it is very common for people to be on the deed and not on the loan/mortgage.  It may be some sort of paperwork mistake, or it may be a state by state thing, but I know in general, you have to be on the loan to be on the mortgage docs.  Anyways, however it worked out for you is cool.  I just did not want anyone to jump in thinking that they could throw their spouse on the loan using only the higher FICO but count both people's income.

Message 6 of 10
bschmidt
Established Member

Re: Planning for mortgage - questions...

Thank you all for your responses.  This is actually very helpful.  I've really been focusing on my credit first, but it looks like we'll have to devote alot more time to cleaning hers up.  We have an established relationship with a credit union already, so we'll look into getting a credit card from them for her.  With Wisconsin being a community property state, it doesn't sound like applying for a mortage in my name only is even an option.  Guess I'm in for more that I thought, but glad I found out now.  Thanks again for your help!

Message 7 of 10
bschmidt
Established Member

Re: Planning for mortgage - questions...

 


@Anonymous wrote:

They always go by the lower of the 2 middle scores when approving a loan with multiple people on the loan


So is the middle lower score used only to consider/approve a joint loan or does that score determine the rates we are going to get as well?

 

Message 8 of 10
hawkeye33
Regular Contributor

Re: Planning for mortgage - questions...

However many people are actually on the loan, the approval will be based on the person on the loan that has the lowest mid-score, so it is used for approval. And you better believe that it can affect the rate you get, depending on the type of loan. Some loans (e.g., FHA) do not vary rate based on score. Your score is either high enough or it's not, and they have a relatively standard rate. Any sort of conventional loan, you are probably going to get a much higher rate based on lower scores. That said, getting a conventional loan with scores under 700 these days, I believe is a pretty long shot.

Message 9 of 10
Anonymous
Not applicable

Re: Planning for mortgage - questions...


@bschmidt wrote:

 


@Anonymous wrote:

They always go by the lower of the 2 middle scores when approving a loan with multiple people on the loan


So is the middle lower score used only to consider/approve a joint loan or does that score determine the rates we are going to get as well?

 


Unless you & your wifes scores reach atleast a 720 or higher , you will most likely have to go fha

Message 10 of 10
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