You've found Mr. or Ms. Wonderul. You've being going out for a while and now things are starting to get serious. You both see marraige on the horizon, so you're running through the marital checklist:
- Smart. Yep.
- Attractive. Absolutely.
- Compatible? Mostly.
- Nice? The nicest.
- Employed? Check.
- Gives you Freedom & Space? When Needed.
- Healthy Credit Score? STOP THE BUS!!!
So what does a healthy credit score have to do with getting married anyway, you ask. It matters a lot if you're trying to buy a home together.
Let's take for example, a case where the credit score of a soon-to-be bride is good at 760, but her soon-to-be husband will never qualify with scores in the low 500s. They know they're perfect for each other, but their credit certainly doesn't get along. Why is this an issue?
I'ts a problem because credit scores are usually the last thing potential partners are thinking about when choosing their mates - even though his score can drastically determine the lifestyle and living standard that they will enjoy. In most programs, lenders look to the lower of the two scores... so no matter how good she's been about managing her money and credit, he's been conversely bad on his. Lenders stick to the lowest scores when qualifying their clients.
So Now What?
So now the questions begin. Can he be on the loan? Can we use his income? Can we use his assets? And all of these questions are relative because they will help determine the type of loan this young couple can qualify for, and in the end - what type of home they will live in. Expectations are high when you're about to get married.
The Short and Sweet
- If you can't use the credit score, you can't use the income either.
- If you can't use the income, you can't use the assets.
What this means is that she will now have to qualify for the entire loan by herself, and depending on her income that may not be possible. In many situations, couples rely on both incomes to qualify for their mortgages, and make the payments.
Time was, if she had sufficiently good credit, lenders could do a low-doc (low documentation) loan with just her on the application and qualify for 100% financing. It could be that exactly these types of loans are contributing to the 'mortgage crisis' that we hear about almost daily on the news. With lenders now severely restricting the use of low-doc loans, this couple needs to be more creative. Their other option would be to go with a subprime loan with their LTV (loan-to-value ratio) and income can be flexible for those with higher credit scores. She may not like this in the end though, as she's being penalized for credit mistakes that weren't hers.
Credit and Debt Management
Potential borrowers in this kind of situation should take a long hard look at both their credit and debt management. The better long-term solution is for him to work on improving his credit score and both of them to come to an agreement on how to best manage debt. This way they can work on one of the most difficult issues in marriage BEFORE they get married. Usually, something can be done within 6-8 months. However the bigger gain is that in the process they will have discussed an aspect of life that can be very important to their long-term marital health.