buying a home Archives - Everday Resources

Buying a home is one of the biggest purchases you will ever make. It takes a lot of time and preparation to buy your first home. Sometimes our partner has less than good credit which can complicate the process.

If you have a partner with less than perfect credit, you may want to read below. We will discuss tips to make the buying process better.

Tip 1

If you are married and want the best interest rate on a mortgage, you can buy a home using only one partner’s credit. Most states consider a property that is bought during a marriage to be both party’s responsibility.

The partner with the better credit puts the house in their name, using their income and credit. While you may not be able to buy as large of a house as if you used both partners’ income, you will get a better interest rate. It will also help your odds of approval.

Tip 2

Save up for a little while longer, and put down a higher down payment. The bank wants to see that you can be responsible for the mortgage payments. If you put down at least 20% as the downpayment on the loan, the bank will see that you have the ability to save.

A higher down payment means a lower mortgage amount, which can help if one partner has bad credit.

Tip 3

Wait until your partner raises their credit. Sometimes waiting is not fun. But in the end, it is worth it. Have your partner take a credit repair course to understand why their credit score is low. Once they understand why they have poor credit, they can begin to fix it.

Credit repair can be done by eliminating debt, paying credit cards and bills on time, and not applying for new credit. After six months to a year, your partners’ credit can be in a better place. Which will help with mortgage approval.

Tip 4

If your partner has bad credit, maybe you should look at buying a smaller home. If one person isn’t good with finances it may not be wise to buy a home that they can’t keep up with. You want to avoid foreclosure at all costs when buying a home.

Think of circumstances where your partner may be the one responsible for the home. If you lose your job or become injured, will your partner be able to take over a large home?

Tip 5

If you want to buy the home of your dreams, but your partner has poor credit, add another stream of income. The more money you make, the more likely you are to be approved for a home.

All Things Considered

With everything you know about the importance of mortgage preparation, you will want to find a plan that works best for you and your partner. You are not out of luck getting a mortgage if your partner has bad credit.

1. Look At Your Debt-To-Income Data

The very first step to mortgage application preparation is to determine your monthly income as well as your debt payments. Your potential lender will want to see evidence of employment, generally going back two years, but often a few recent pay stubs can get you started with many lenders.

If you are one of the millions of Americans who are self-employed or have variable income such as performers, be prepared to have that process be much more involved. Getting the best mortgage overall, as well as the best payments and interest rates, is going to be dependant on your debt to income ratio.

2. Clean Up Your Credit Health

This is often one of the largest challenges for many people. Your credit history report and your credit score will be instrumental in your lender’s eventual decision. You should aim to have a FICO score of 680-700 as a floor. However, if your credit score is only missing 680 by a small margin, you may want to look into an FHA loan, which has a little bit easier approval requirements in some cases.

3. Calculate Your Mortgage Budget

Before you make an appointment with any potential lenders or mortgage officers, you will want to know for sure, how much house you can afford, and what you can commit to in terms of a monthly payment. This payment will include your taxes, fees, and insurance, and should not be more than 33%-35% of your pre-tax income. This can be a difficult stage, since many mortgages have variable interest rates, meaning your payment could fluctuate at some point in the future.

4. Plan To Save For Your Home Down Payment

This is a very significant step and can make or break your house hunt. Many lenders will require you to be able to put at least 10% down unless you are participating in an FHA loan or other special lending program. If you can put at least 20% down, you can avoid having to obtain PMI, or private mortgage insurance, to protect your lender against a possible foreclosure of the property before it has enough equity built up.

5. Figure Out The Best Time To Apply

You can often get a pre-qualification without a hard credit pull. It will however stay on your credit report for some time. A pre-qualification can give you a good indicator of whether you can obtain a mortgage at a glance, and is often a very strong indicator of being a serious buyer. You can often get a pre-qualification letter that will be good for 60-90 days depending on the lender, it’s non-binding, and will put you in a great position to start looking around.