Picture this: You’re a financial rock star. You pay all your bills on time and you work hard to earn more — so you can save more. Your credit score reflects your savvy money-management skills, and you can proudly boast that you’re a member of the 730-and-up credit score club. Your partner? Not so much. Whether due to past actions or financial mistakes they’re currently working to correct, your love’s credit score is not something to write home about. What’s a committed couple to do?
Before you give up on your dreams of Chicago, IL, real estate, take a look at the following options for buying a home with bad credit and determine what path makes the most sense for the two of you.
Understand why your partner’s credit score is low
Before you try to persuade a lender to approve you for a loan, ask why your partner’s credit score is less than stellar. If you can chalk a bad credit score up to a mountain of consumer debt, you both might need to take a step back. Buying a home isn’t a requirement — it’s an important decision — and trying to force the situation while one of you faces tough financial straits might not be the best idea.
If your partner has “bad” credit due to long-past transgressions, you could both benefit by taking action to improve their score before applying for a home loan. If you decide to put your home purchase on the back burner, work with your partner to improve their credit by developing a debt repayment plan. Start with these tips to boost a credit score (and score a better interest rate on that mortgage):
- Check credit reports, look for mistakes, and correct errors if necessary.
- Make all future payments on time and in full.
- Keep your credit utilization ratio low (which means don’t run up a balance of $499 on a card with a $500 credit limit, even if you pay off that balance in full every month!).
- Leave old accounts open but don’t use them.
Make the mortgage your own
Ready to buy a house now? It may make more sense to apply for a loan on your own instead of going in jointly with your partner. Keep in mind that lenders look at your entire financial picture to determine whether you qualify. That means your own income, assets, and creditworthiness need to meet the lender’s requirements without any help from other sources.
Before running down this road, ensure that the monthly payments and other costs associated with homeownership are ones you can shoulder on your income alone. While no one wants to think about worst-case scenarios, it’s your name on the dotted line — and you’re the one responsible for paying the mortgage if the two of you ever split up.
Plead your case
Although mortgage lenders may seem like faceless entities incapable of deviating from their set processes, there is room for you to explain your situation and provide all the facts. If you can show your partner’s bad credit stems from factors that will not impact your reasonable ability to repay the home loan, the lender may approve a joint application despite a low score on one end. Ask if you can write a letter of explanation for a low credit score. If the lender says they will consider your explanation, provide as much documentation to back up your reasons as possible. Consider including explanations and documents to show how, together, you and your love can reasonably make your monthly payments on your potential loan.
Consider a co-signer
If none of the above solutions works for your situation, you can consider asking someone to co-sign the home loan with you. Another person with a good credit score, sufficient income, and a low debt-to-income ratio could help you qualify for the mortgage you want. But don’t consider this option lightly. That co-signer will be financially responsible for the loan if you default — and even if you have no intention of defaulting on a loan, unexpected emergencies or hardships can arise. To put it simply, co-signing can come with a lot of baggage. If co-signing makes sense for you, it’s an option — though you might want to pursue other options first.
Love is blind, but mortgage lenders may not be so forgiving (or, well, blind to the realities of your financial situation). If you can find a workable solution, take action and make your homeowning dreams a reality. And if you both need to take some time to repair that bad credit score? Do that, and rest easier knowing your financial ducks will be in a row before you take on a mortgage.