The Truth About Joint Mortgages

If you’re one-half of a married couple buying a house, chances are that you’re applying for your loan together. Stop.  Think about it.  Is that the right move?  If it’s not necessary – that is, if you don’t need both of your incomes to qualify – should you do it?

Maybe, maybe not. It depends on your situation, and a lot depends on something that most people don’t know – usually, lenders will price out your loan application based on the lower credit score in a couple, not the higher one.  If your credit score is 750 and your spouse’s or partner’s is 670, your interest rate will probably be higher based on your spouse’s or partner’s lower credit score.   On the other hand, if you both score around the same, it won’t make much of a difference.

This interesting and fairly unknown rule is known as the Minimum FICO Rule. Most lenders and mortgage insurance companies follow it.  Fannie Mae and Freddie Mac also follow this rule.  And you, the borrower, could end up paying more as a result.

If one of you has lower credit and the other can qualify on his or her own, you could end up with a lower interest rate and save thousands over the years, even if the interest rate just goes down an eighth of a point or a quarter of a point.  And money you save, is, well, yours.  Go buy something else, right?  Why pay it in interest?

If you do decide to apply on your own, you may have a related concern. While you’re the only one on the mortgage, you probably want your spouse or partner on the deed and title to the home for a variety of reasons.  Usually, that’s not a problem.  If you are married, as long as you notify your lender early on and as long as your spouse’s name is on the contract, the seller’s attorney can prepare the deed and title with both of you on it.  If you are not married, you definitely want to notify your lender right away to make sure joint title is not an issue.

The housing market is hot right now. If you’re buying a house with someone else, make sure you check your credit and start the mortgage process off right!