Ever heard that the credit score of your spouse may make or break your dream of owning a house? The moment you get married, the credit score of your spouse helps in determining your financial future, especially when you plan to purchase a house. Although marrying someone with a low credit score doesn’t affect your credit score, it affects the approval of home loans and the interest rate. Whether you live in Texas or any other state, your spouse's poor credit score always impacts the decision of buying a house.
Lenders check both of your credit scores during the loan approval process. Only one partner is eligible to apply for a mortgage, but in many cases, couples need both incomes to qualify for the home loan. Let’s look at a few factors that may prove to be a hurdle in loan approval.
Debt-to-income Ratio
Monthly payments made by an individual on credit accounts, mortgages and auto loans fall into debt category. The gross amount an individual receives before tax deduction helps in calculating the income. A low debt-to-income ratio of the spouse always increases the chances of mortgage approval for the new loan. Conventional loans have debt ratio capped at 36 percent while individuals with a debt ratio of up to 43 percent are eligible for FHA loans.
Bankruptcy and Foreclosure
If credit scores of a couple meet the lender’s requirement, it still doesn’t guarantee a mortgage approval. Lenders look for negative financial events such as short sale, foreclosure and bankruptcy in applicant’s credit history to determine eligibility. If one partner has a decent credit score with no negative history, but the other has announced bankruptcy in the past, the couple might face a problem in loan approval. The spouse, in such a scenario, needs to go beyond the seasoning period to be eligible for the mortgage.
Community Property States
Married individuals planning to buy a house in any of the nine community property states - Arizona, Nevada, Wisconsin, California, Texas, Louisiana, Idaho, New Mexico and Washington- need to share the credit profile of their spouses. Many lenders don’t worry about credit score of the non-purchasing spouse, but negative financial events such as bankruptcy might result in denial, even if the spouse isn’t taking the loan.
Married couples, who are planning to buy a house in near future, need to check their credit scores and history in advance. It is not possible to remove negative information from the report, but paying bills on time and a low income-debt ratio definitely improves the chances of qualifying for the loan.
