Whose FICO score is used on a joint mortgage?
Mortgage lenders will ALWAYS use the person who has the highest income as the primary borrower. Sometimes in the case of married couples it is better to only use one spouse (who ever has the higher score) as long as the income from one will satisfy the debt-to-income ratio required by the lender. The higher score will generally affect the interest rate while the income does not.
If you are going to be hunting for a home, be sure to curtail the temptation to go out make purchases that may affect you credit. Obviously you wouldn’t want to go buy a car, but other things that may not be quite as obvious may be the purchase of furniture or home improvement items that would need financing. Chances are you may need these things, but wait till after closing.
While the person who has the highest income is used as the primary borrower, there are some lenders who will actually consider the co-borrowers score as well. Some lenders will average the scores of all borrowers to determine your interest rate, and some will even use the co-borrowers score exclusively. Since the types of programs available change on a regular basis, be sure to check with your mortgage professional to see what programs you qualify for given your specific situation.
There are a few lenders out there in the subprime market who will allow you to use the borrower with the highest credit score, regardless of who makes more money. Normally these types of lenders will offer higher interest rates because there is more risk involved in these types of loans. Many times with two borrowers on a mortgage, the person whose score is not being used will still have to meet certain score requirements to be included on the mortgage loan.
Many lenders that use automated underwriting can issue you a pre-approval that is good for up to 120 days. It is important for your budgeting and comfort level to make sure you address any potential financing issues prior to making an offer on a home. Your mortgage professional can give you tips at that time so you are best positioned to get low rate financing.
Remember, each credit bureau will return a credit score based on the information reported to them. This means that each borrower will have 3 scores. The qualifying score will be the middle of the three scores for each borrower.
If either borrower's credit score is below 500 on a conventional joint loan application, most lenders will not allow theincome or assets of the individual whose scores are under 500 to be used for the purpose of qualifying for a mortgage, although that person's liabilities may still be used. You may need to consider a private lender to accomodate your refinance if the primary wage earner's credit score is under 500.
You can still have access to low mortgage rates even if you are the primary income earner and your fico score is lower then your spouses. If your mortgage broker runs you through an automated underwriting engine your fico score is only part of the equation. Automatic underwriting engines use factors such as DTI, amount of reserves, equity and not just fico score to determine mortgage eligibility.