mortgage

Credit score undercuts home mortgage plan

Don Taylorq_v2.gifDear Dr. Don,
My wife has a fairly high credit score (725) but her annual income is around $45,000. My income is around $150,000 but my credit score is really low due to some financial problems I had before we were married. Can we purchase a house with just my wife's credit score and her income? In our case, would applying for a home mortgage loan together be better or worse?
-- Paul Payment

a_v2.gifDear Paul,
Qualifying for the home mortgage loan using just her credit history and income can be done, but the size of the loan will be limited to the payment she can afford based on her income. Bankrate's "How much house can you afford?" calculator can provide that estimate for you.

If you need both incomes to be considered in order to qualify for the loan, your credit score comes into play as a condition of counting your income.

You can work on your credit history. Asking your wife to put you on her accounts as an authorized user will add her payment history to your credit report. Staying current on your accounts (along with the passage of time) will also improve your credit history. Most negative information stays on a credit report for seven years. A Chapter 7 bankruptcy stays on your credit report for 10 years.

Talk to prospective lenders about how they evaluate a couple's credit history before applying for a mortgage. Some lenders use an average of the couple's credit scores. Others may use just the primary co-borrower's credit.

Don't apply with a lot of lenders, unless you do it in a very short period of time -- one to two weeks. When you apply to several lenders over a longer period of time, each inquiry will show up on your credit report and lower your credit scores. When you apply to several lenders over a short period of time, the credit scoring model treats it as you are comparison shopping, which you are.

The myFICO publication "Understanding Your FICO Score" explains how comparison shopping for a mortgage impacts your credit score.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

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