Good Credit, Bad Credit - Buying a Waterloo Region Home as a Couple with 'Mixed Credit'
Ready to buy a Waterloo Region home with the one you love? Do you have good credit? Yes? Great. Now, what about your sweetheart? If not, getting a mortgage to buy a Waterloo Region home may be difficult - even with a great income - not to mention put a strain on your relationship.
But it’s certainly not an impossible dream, or even something you’ll have to wait a decade to achieve. First, you need to understand how mortgage lenders view joint mortgage applications (whether you’re married or not). Then, take these steps to improve the odds you’ll land your dream Waterloo Region home…and stay in love!
Joint Mortgage Application Basics
It seems reasonable enough: If one partner's credit is bad but the other's is good, why not just apply for a mortgage using only the good credit score? The trouble is, if you submit only one partner’s information on the mortgage application, the mortgage underwriters will only consider that partner’s income and assets in determining whether to approve the loan. And, in most cases, couples count on their combined income and assets to qualify for a mortgage.
If the partner with good credit cannot afford the loan on his or her own, you’ll need to apply using both of your scores. That means a more difficult road to approval and much less favorable loan terms.
Steps to Take If Your Credit is Good But Your Partner’s Is Bad
Talk about your credit now
The last thing you want is for your partner to find out from a mortgage broker that you have bad credit. Remember, financial differences alone rarely imperil relationships, but a couple’s failure to communicate about their finances can.
Check your latest credit scores
Again, talk about what you find. Why is one partner’s credit poor? Is it the result of a past problem or a pattern of financial negligence? Or, given the events of the past two years, is it related to a COVID-19 impact event that you had very little control over? For a few bucks a month, credit monitoring services let you track whether your credit is improving.
Set realistic expectations
In today’s times, it may be impossible for somebody with poor credit to get a mortgage alone. Together, with one good credit score and one poor one, you still have a shot at a mortgage approval, but it won’t be easy. Expect to deal with several lenders and to spend weeks waiting. You can also expect to pay a lot more in interest. Remember that this will also reduce the amount of house you can afford.
Improve your credit
You can usually improve your credit by a least a moderate margin in between six and eight months. Avoid any late payments, refrain from applying for new credit (or closing any credit accounts), and pay down any credit card accounts as much as possible. Don't close any accounts that are in good standing, though, as that will reduce your available credit (in the eyes of the credit bureau) and damage your improving score.
One way to improve credit that can be even easier is to ensure that everything on your credit report is accurate, and that you dispute anything that is not. Doing so is free - and a lot easier than it was in the past, as everything can be completed online - and it can really help.
If you Apply Alone
Despite the disadvantages, sometimes it makes sense for the partner with good credit to apply for the mortgage alone. (Perhaps that person also has a substantially higher income). The non-applying partner can also transfer any assets into the applying partner’s name, but any income will still be off limits for mortgage approval consideration.
Remember, however, that the deed of the house will be in the name of the partner whose name is on the mortgage—only. For married couples, this typically isn’t a problem. Should the owning spouse pass away, the home will go to the surviving spouse.
If you’re not married, think long and hard about how you want to buy a home together…especially if one partner is applying for the mortgage but expects the other partner to help pay. The partner that signs the loan note owns the entire home in the eyes of the law—even if the other partner is paying 50% each month.
In this case, either determine that the non-owning partner is simply renting from the owning partner, or enlist an attorney to create a contract outlining how equity will be credited to both the owning and non-owning partner in the event of a sale or separation.
Ready to start looking for that perfect for you Waterloo Region home? Let Team Pinto use their huge local real estate experience and expertise to help you. Contact the award-winning Team Pinto here, or book a free Zoom consultation to discuss your unique Waterloo Region real estate needs here.