Marty Searing
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Whose FICO score is used on a joint mortgage?
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.

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.

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.

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.

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.

Your FICO score and loan-to-value - Nearly all lenders, whether conforming or subprime, use your FICO score to determine the loan-to-value that you can borrow to. For most lenders these guidelines are accross the board with the exception of a some niche lenders that may allow slightly higher loan-to-values.

Many lender's guidelines considre credit scores in 20 point intervals. For example, a borrower with a credit score of 599 may have more LTV restrictions than a borrower with a 601, even though there are only 2 points difference. If your credit score is just a few points away from an even 20 point interval (such as 679, 638, or 599) be sure to ask your mortgage professional if the allowed loan to value ratio would be higher with a small score improvement. If the difference is significant you should consider reviewing your credit report and determine the best way to gain a few points on your credit score.

FHA will generally overlook fico scores if the overall credit profile justifies that the borrower has improved their financial habits. The most important factor in a FHA loan is mortgage history over the last 12 months.

For those individuals with less than perfect credit, non-conforming lenders allow loans up to sometimes 95% of their property's value.

Certain criteria must be met and these individuals should expect to pay slightly higher charges in closing costs and having a slightly higher note rate. It is also not uncommon for these non-conforming loans to have a pre-payment penalty.

Most lenders take your mid-score, or the middle score of the 3 scores reported by the bureaus. However, some lenders are willing to take the highest of the 3 scores, which sometimes can end up being the difference between a deal or no deal, or a deal and a good deal.

The common cut-off score for 100% financing is a 580 score. There are some programs that vary slightly from this number, and the programs are always changing, so this is not set in stone.

Another factor that is used with your FICO score to determine how much you can borrow (your LTV)is what type of documentation is being used. Full Doc means you are submitting W-2's and pay stubs, or tax returns if self employed, and you are documenting your assets with bank or brokerage statements. A Full Doc loan will allow for a higher LTV than a Stated Doc loan with the same FICO score.

Some lenders out there will even take an average of your 3 credit scores instead of using one particular credit score to determine how high of a LTV, loan to value, they will allow on a mortgage loan. For 2 borrowers they will even add up all 3 credit scores for each borrower together and then take an overall average to come up with one credit score that they will use to determine what mortgage parameters you will qualify for. Therefore, if one partner has poor credit but makes all or most of the money and the other has excellent credit but makes little to no money, by using a combined average for both borrowers it may help the borrowers to qualify for a better loan or a higher LTV. Ask your mortgage professional if you have any questions about how this works.


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