Is it easier to qualify for a loan by yourself or jointly if the other person has bad credit?

Asked by Ctaylor071, Glenwood Grove - North Iris, Boulder, CO Tue Jul 31, 2012

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Luna Petty’s answer
Luna Petty, , Pasadena, CA
Tue Jul 31, 2012
Hi Ctaylor071,

Generally speaking, it is more beneficial to qualify for a loan by yourself (if the individual has the credit, income, downpayment, etc to qualify) then it is to qualify jointly if the other person has bad credit. The term 'bad credit' is relative, meaning what is bad to you and I may not be bad to the lender who is approving your home loan. Also, generally speaking adding a person with bad credit to a home loan will affect the type of loan, interest rate and fees. I've been in the industry for 12years and I can answer more specifically if I knew more details. Good luck!
0 votes
ryateslenders, Agent, Plano, TX
Sun Aug 25, 2013
If someone has bad credit, chances are they will not be allowed on the loan. Both the signer and co signer must have acceptable credit to be on the loan, lenders go by the lowest score.
0 votes
Irina Karan, Agent, Aventura, FL
Sun Aug 25, 2013
This depends on how bad the credit is, and if that person will reside with you (occupant or non-occupant co-borrower), or it is parents purchasing with/for a child.

Really bad credit co-borrower is generally not good, however, if he/she improves their credit scores - they could help, if they will reside with you.

Non-resident co-borrowers go under different guidelines, and while they could help some, the whole picture is looked at by the bank (their having to pay their own rent/mortgage/car/student loans etc).
If their own obligations are "too heavy" - they won't help much.

Hope this helps,

Irina Karan
Beachfront Realty, Inc.
IrinaKaran@gmail.com
0 votes
Ron Takeuchi, Agent, Glendora, CA
Tue Jul 31, 2012
Hi Ctaylor071,
Generally, you may need to consider qualifying for a loan yourself as a low FICO score usually cannot be financed. Of course, the specifics of your financial situations is what counts and the expertise of a trusted lender. If you need assistance with this or any real estate related question, please contact me.

Sincerely,
Ron Takeuchi
Town Square Real Estate
Pasadena
626-808-8430
0 votes
x, , 10021
Tue Jul 31, 2012
Ctaylor071 -
First thing to keep in mind is that the underwriter will determine a "representative credit score," which will be the score that is used to determine the loan program availablity and the pricing of that loan. By pricing, I am referring to rate. There are loan level pricing adjustments that most loans have that are dictated by loan to value (loan size divided by value - or purchase price - whichever is less) and credit score. Lower the score, higher the risk and higher the rate. Getting back to representative credit score - each borrower will typically have three scores - Trans Union, Equifax and Experian. The first thing the underwriter will do is to isolate the middle score of the three that are produced at the borrower level. If there are only two scores for any of the borrowers, the underwriter will take the lower of the two and if only one score is available, they will use that score. Once the middle score is isolated for both borrowers, the underwriter will then take the lower of those two scores and use that as the loan level representative credit score - the score used to determine approvals, pricing etc. With this in mind, you might want to consider your options carefully. There is no reason to add a second borrower, unless there is some necessary advantage. An example of this would be, you don't qualify for a loan becasue your debt to income ratio is too high. If this is the case, you will need your secondary borrower no matter what. I would suggest that you try and qualify for the loan by yourself, before you add the secondary borrower. Tell the loan officer to run the AUS (Automated Underwriting System) with just you on the loan to see if it approves. Keep in mind that it is imperative to give the loan officer accurate information about your income - 2 years W2s and last two paystubs. Typically, telling a loan officer that you make $55K a year, doesn't cut it - there are a lot of underwrting quirks that that the loan officer would pick up on that you might not think about such as specific recurring deductions and how to handle overtime pay. One other disadvantage to havign a secondary borrower - that may have bad credit is - the added liabilities that that borrower carries may increase the loan level total debt to income ratio. Also, if the secondary borrower has any collections, they will probably have to be paid in full before you close. If you want me to take a look at the scenario for you, I can give you some additional advice to help make this process much easier for you.

Email me at: ryanjmcpartland@gmail.com
http://www.linkedin.com/in/ryanmcpartland
0 votes
Scott Godzyk, Agent, Manchester, NH
Tue Jul 31, 2012
the easiest thing is o meet with a local and trusted loan officer who can lool at both your credit reports an financials and prequailify you at ncost, they can guide you which way is best for you and what type of loans may be available.
0 votes
Pamela Shemet, Agent, Crystal River, FL
Tue Jul 31, 2012
Agree with Bill. Please contact your local lender for the best course of action. All the best.
0 votes
Bill Eckler, Agent, Venice, FL
Tue Jul 31, 2012
Conditions may vary depending on your individual details. To best understand your options, it would be advisable to consult several different lenders for their input.

Good luck,

Bill
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