Most couples apply for mortgage loans jointly. But what happens when one of them has bad credit?
Bad credit can be a real problem for married couples who apply for a mortgage together. Typically, the lender looks at the lowest of the two credit scores when deciding what interest rate to charge — so if your spouse has bad credit, your mortgage rates will be affected.
Just because one person doesn’t have a stellar credit score doesn’t mean your homebuying dreams are crushed. Here’s how to navigate home loans when you or your spouse has bad credit.
Understanding How Credit Affects Your Mortgage
Credit scores play a pivotal role in mortgage applications for couples. Lenders use the lower of the two scores when determining the interest rate on your joint application.
A poor credit score can lead to higher rates, loan denial, or a smaller loan amount — and a higher interest rate can cost you tens of thousands of dollars over the life of a loan.
For example, say you have an excellent credit score and apply for a $250,000 mortgage on your own. Your rate for a 30-year mortgage comes out to 5%. If you take the full 30 years to repay, your total expenditure over the loan’s lifespan would be $483,138.
Now imagine you and your spouse apply jointly. Your spouse has a poor credit score, resulting in a higher interest rate of 5.5%. In this case, the total cost over 30 years would be $515,204 — an increase of $32,066 compared to the solo application.
Even a seemingly modest change in the loan’s annual percentage rate (APR) can result in a considerable financial difference over the life of the loan.
Consider Your Debt-to-Income Ratio
Your credit score isn’t the only factor affecting your mortgage. Your debt-to-income (DTI) ratio also affects your rate and how much home you can afford. The better your DTI ratio, the more you can qualify to borrow each month.
While a low credit score can significantly affect your rate, adding a second income to the application may help you qualify for a larger loan — even if the trade-off is a higher rate due to the lower credit score.
How to Get the Best Interest Rate When Your Spouse Has Bad Credit
Only Have One Person Apply
The quickest way to improve your mortgage rate when one spouse has bad credit is to have only the good-credit borrower apply.
If the higher-income borrower has good credit, that’s often sufficient to qualify for the mortgage on its own. The higher-income person is typically regarded as the primary borrower.
Applying jointly can help you qualify for a larger loan by combining your incomes in the DTI calculation — but if one borrower has bad credit, the rate impact may outweigh the benefit of the added income.
If the good-credit partner has sufficient income, consider applying under just their name. You may not be able to borrow as much, but this is the most straightforward path to a favorable rate.
If only one of you is named on the mortgage, you can typically still have the deed to the property in both names — the deed and mortgage are separate documents. However, lender policies vary, so confirm this before proceeding.
If both of you will be contributing to the mortgage payments but only one is on the loan, it’s a good idea to have a written agreement in place regarding the home’s disposition in case of a separation — particularly for unmarried couples.
Get a Co-Signer
If you need more income to qualify for your desired loan amount, you might consider bringing in a co-signer — such as a parent or close relative. Their good credit can offset the impact of your spouse’s lower score while boosting your combined qualifying income.
A few things to keep in mind, however. First, if the co-signer earns more than you, the lender may list them as the primary borrower — which they may be unwilling to accept.
Second, co-signing ties up a significant portion of the co-signer’s own borrowing capacity, since they’ll be held fully responsible if the loan defaults.
Finally, the co-signer will need confidence that all borrowers will consistently make payments. If they have doubts about the low-credit partner’s reliability, they may decline to co-sign.
Improving Your Spouse’s Credit Score
Improving the lower credit score is the surest way to get a better deal on your mortgage. If you’re not in a rush, there are several steps you can take to improve a credit score over the course of several months:
- Pay down credit card balances, especially any that are close to the credit limit
- Maintain a revolving credit utilization rate under 30% — or 10%, if possible
- Avoid closing credit cards unnecessarily, as this can reduce your available credit and hurt your score
- Review your credit report for inaccuracies and dispute any errors you find
This approach takes time but offers the best long-term outcome — allowing both partners to be on the mortgage while qualifying for the best possible rate.
Take Advantage of Government-Backed Loans
Government-backed loans are another option for borrowers with lower credit scores. They offer more flexibility in credit requirements than conventional loans, which typically require a minimum score of 620 at Refi.com.
The two most common government-backed home loan programs are FHA and VA:
The FHA loan program officially allows credit scores as low as 500 with a 10% down payment, or as low as 580 with a 3.5% down payment. However, these are the FHA’s minimum requirements — private lenders, including Refi.com, typically set higher thresholds. Refi.com requires a minimum credit score of 620 for FHA purchase loans. Keep in mind that FHA loans only allow co-signers who are related to you.
The VA loan program is available exclusively to veterans, active-duty service members, and eligible surviving spouses. The VA itself does not set a minimum credit score requirement, but individual lenders apply their own standards. Refi.com requires a minimum credit score of 620 for VA loans — and as long as you qualify, no down payment is required.
Whether you’re looking to purchase a home or refinance an existing mortgage, Refi.com can help you find the right loan for your situation. See if you qualify for a lower rate or start your application with Refi.com today.
