Do Not Apply for a Mortgage With Your Partner If One of You Has a Much Lower Credit Rating
Depending on your credit score, applying for a mortgage without your spouse or partner can save you tons of money.
If you have an excellent credit rating, such as 780, but your partner has 630, the lender will most likely charge you a higher interest rate based on your partner’s rating. Not all lenders follow this “minimum FICO” rule (when I applied for a mortgage with my husband, they took the average from our estimates), but it should be noted. According to a Federal Reserve study that recorded over 604,000 home mortgages between 2003 and 2015:
[N] early 10 percent of major borrowers who jointly applied for a loan could lower the mortgage interest rate by at least one-eighth of one percentage point if an applicant with a higher credit rating and a sufficiently high income applied for the mortgage. apply for a mortgage
In other words, tens of thousands of mortgage holders were paying much more on their mortgages than they needed to. One-eighth of a percent may not sound like a lot, but it can lead to a difference of thousands of dollars each year.
Of course, you may need your partner’s income to be eligible for your desired mortgage amount. However, as the Washington Post notes:
Of the approximately 604,000 co-applicant loan files, 249,000 couples either had one person with a higher FICO and sufficient income to meet the criteria, or both partners could qualify individually for income, with even one having a lower score. Of these, 1 in 10 joint applicants could save money by applying with a higher FICO.
Another problem is that a person with a lower credit rating might also want to be on a mortgage, but you both might be in one without having both names in the mortgage.
The FICO Minimum Rule is another thing to be aware of when you’re new to buying a home.
Many couples pay more when they both apply for mortgages | Washington Post