@PrinceCorwin wrote:
Here's the situation: First time buyer. I've gotten my credit on pace this last year. Should be well over 700 (I'm hovering around there already) by the time we go for a mortgage. My income is between 65-85k, depending on current job hour requirements (I'm in the industrial construction trade... jobs come and go frequently). My wife (married 2 years) is another issue. I've set up payments for two collection accounts in her name (from previous marriage) and they should be PIF within 4-6 months. Her scores are hovering around 630-650 right now.
@Recently, she's been getting collections letters from other lenders (again, from previous marriage) totalling over 5k. They aren't in collections on report yet but may be soon. Her income is only @15k from social security disability. My question is, should I continue to pay these accounts, helping her credit so we can apply jointly or just do it solo with my scores and income, saving several thousand that could go towards down payment? Would we really benefit from applying in both of our names?
The answer to your last question depends on a few things:
- Are you planning to go conventional or FHA/VA/USDA?
- The answer to the above question may be based on your current funds for down payment and your current debt levels.
- Are you in a community property state?
Remember the lender is going to use the lowest mid score (of your FICO scores commonly used for mortgages, not FICO 8s). So if your mid score is in the 700s and hers is in the 630 to 650 range, then her score will be used for qualifying purposes if you both apply for the mortgage. This makes a difference in your interest rate if you decide to get a conventional loan rather than a government insured type mortgage loan (FHA/VA/USDA).
Also, if you do decide to get a conventional loan, her rate will negatively impact the rate charged to you for PMI if you put down less than 20%. The amount it affects your PMI depends on her actual qualifying score and the LTV you select for your mortgage.
Given the above, since you have the largest share of the annual income it is much better for you to apply by yourself and work on your wife's score for the future. You can get a conventional mortgage loan for 5% down. Actually as little as 3%, but the 3% program has much higher closing costs and a higher interest rate and higher PMI - therefore, in most instances, it isn't worth it.
If you need extra room in your ratios to account for debt, then go for an FHA/VA or USDA type loan. Have your LO compare the available loan types so you can choose which works for you best based on your specific criteria. Location makes a huge difference in your decision. Student loans do too if you have them.
