Does one person having marginal credit but strong income hurt on joint app?

[Anonymous]

Hey guys,

New to MyFico and the forums, but this seems like a solid site.  I have a question about my sister applying for a home loan with her husband; I don't have all the particulars so I know you can't give me a 100% answer but thought I'd ask generally.

So she has excellent credit, strong work history and makes ok money for her area ($55k/yr).  Her husband has a strong work history and makes excellent money ($100k plus) but his credit was destroyed during a messy divorce a couple years ago, and he's still trying to recover.  This is all from what I understand, I don't know all the particulars.

My thought is while his credit is weak, his income will certainly help.  Her thought is she should apply as an individual, even though she realizes she wouldn't qualify for the amount they would really want to purchase the house they should be able to afford.

Waiting to repair credit notwithstanding, would he be beneficial on the loan even with weak credit, or would it just tank the application?  Any input is appreciate, thank you.

[CGeorge]

I went through the exact same scenario. I was the one with the poor credit (due to a voluntary foreclosure of a resort rental income property). My credit score was under 600, while my husband's was right at 840. My income at the time was $90,000 - while he was retired, able to claim only Social Security and monthly, scheduled withdrawals from his 401K. His income was right at $40,000. We were looking for a construction loan for a new home. Fifth Third Bank took one look at our credit scores and incomes - and told us both - to leave me off of the loan. They mentioned that they would take the average of our two credit scores (his 840 and my 550). I would really drag his score down, and would thus the loan would not qualify for the very best of rates. He was able to procure the loan on his own, but - oh my gosh - the process was horrendous. Just telling you know what I went though....best of luck to you. 

[Mortgage-Specialist]

If you can tell me roughly what your sisters husbands scores are and how old his late payments are, I can give you a better response. If his late payments are over 24 months old it would be preferable but it doesnt disqualify him if they're not.
There is no real way they can determine which route is better since they dont know what the bank is looking for. The goal is to present all info to the lender so they can determine which option would work most favorable for them. No two lenders are alike and you'll find different answers from different lenders based on their own specific guidelines.

Short response - If your sisters income can qualify without ger husbands then they would use just her on the loan. If not, they will want to add him. Keep in mind, if he has a boat load of collections - it doesnt mean he needs to pay those off in order to qualify. Some lenders make it mandatory. It's not a requirement for other lenders. The gentleman I recently closed had over 25k in collections that consisted of a car repo and credit cards collections. It was an FHA loan. He didnt need to pay a single one of them off and it didnt affect his interest rate since the rate is based on credit score.
Please let me know if you have any other specific questions.
Thanks,
Joe

[Anonymous]

Thank you all for your replies.  It does sound like the general consensus is that his credit would only hurt and the additional income wouldn't really offset it.

I think I'm hearing the advice that I gave her, which is to be patient and help build their credit back up a bit before applying, or they'll end up with a house they really don't want.

Thank you for the advice and information!

[Mortgage-Specialist]

Not necessarily. If they qualify now, they may want to take advantage of the current interest rates as they are expected to keep rising.

[VALoanMaster]

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@Anonymous wrote:

Thank you all for your replies.  It does sound like the general consensus is that his credit would only hurt and the additional income wouldn't really offset it.

I think I'm hearing the advice that I gave her, which is to be patient and help build their credit back up a bit before applying, or they'll end up with a house they really don't want.

Thank you for the advice and information!

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There is a big caveat that hasn't been mentioned.

If they live in a community property state & they're going to use a government backed mortgage (FHA, VA, USDA) then his debts will be counted against her income anyway so they may as well apply together to see where they stand. 

[Anonymous]

The lender will use the LOWEST score of the two applicant. Period. Depending on the purchase price of the property, it would probably best to work on improving the other applicant's score to be qualified for the best rate. I'm saying these things from recent experience.
What are the key things they look for:
DTI..Debt to Income Ratio
Time on the job
1040
W2
Most recent pay stubs
Low revolving balances on CC.
No Disputes on credit reports
Bank statements.
KEEP CREDIT BALANCES between 1-CD. Avoid making large purchases--such financing a car, etc.

[Anonymous]

Me and my wife had the same experience last month, trying to refinance my home and do cash out. I was trying to do it just on my income, and while they approved the loan, it was totally not beneficial long-term. My wife's scores were in the tank but I decided to wait and help her get her scores back in shape. It's worth the wait. Sometimes it's just a few easy fixes to the credit report. The more income on the application the better, HOWEVER, the lender will use the LOWEST score of the two applicant. This is all but certain to give you a high interest rate loan.

Before you apply, get all the necessary documents in place. Finally, keep credit card balances low--really low. Do not even think of applying with high revolving debt. They will not even look at you. If you currently have any installment loans, make sure they are current.
Best of luck.