Thinking of buying a home with your partner? It’s an exciting step, but it’s crucial to understand how your financial histories can impact your future together. A significant difference in credit scores can affect more than just your mortgage rates; it can influence your relationship’s longevity. A recent study by the Mortgage Research Network sheds light on just how costly and challenging marrying into bad credit can be.
The Financial Impact of Mismatched Credit Scores
When one partner has a low credit score (under 640) and the other has a high one (760 or above), the financial consequences are significant.
- Higher Monthly Payments: A couple with mismatched credit scores could face an extra $437 per month on their mortgage.
- Long-Term Costs: Over a typical 12-year homeownership period, this adds up to over $63,000.
- Increased Premiums: Financially mismatched couples often pay higher rates for private mortgage insurance (PMI) and homeowners insurance.
- Wider Financial Strain: A low credit score doesn’t just affect your mortgage. It also leads to higher costs for auto loans, car insurance, and credit cards.
- Geographic Variances: The increase in a house payment when adding a low-credit co-applicant can be substantial, rising 30.2% in Memphis and 29.9% in Detroit. In dollar terms, the increase can be as high as $1,049 in San Jose and $926 in San Francisco.
Credit Scores and Relationship Stability
The connection between credit scores and relationship success may not seem obvious, but research suggests a strong link.
- Increased Risk of Separation: A 2015 Federal Reserve study found that a 66-point gap in credit scores between partners was associated with a 24% higher chance of breaking up in the first four years.
- Longevity and Higher Scores: Conversely, higher average credit scores are linked to relationship longevity. For every 93-point increase in a couple’s average score, the likelihood of separation decreased by 37% in the first six years.
- A Reflection of Trust: Researchers hypothesize that credit scores reveal information about an individual’s trustworthiness and commitment to obligations in general, which are important aspects of a relationship.
Navigating the Application Process
So, what can you do if you or your partner has a lower credit score?
- Lenders Use the Lower Score: It’s important to know that when underwriting a loan for a couple, lenders will use the lower of the two credit scores, not the average.
- Leaving a Spouse off the Loan: While it might seem like a solution, leaving the partner with the lower score off the mortgage application isn’t always an option. Many couples require both incomes to qualify for the loan.
- Community Property States: In nine community property states, a spouse’s debts and sometimes their credit score must be factored into FHA, VA, and USDA loans, even if they are not on the application.
- Time Can Help: The good news is that most couples buy a home long after they get married, which allows the spouse with the lower credit score time to improve it.
Navigating the complexities of joint mortgage applications can be challenging, especially with varying credit scores. It’s essential to have an expert on your side. For personalized advice and solutions tailored to your unique situation, don’t hesitate to reach out.
Click here to get Pre-Approved now
About Me: I’m Sal Trapani, a trusted mortgage broker and the owner of MJ Mortgage LLC, based in Magnolia, Texas. I work with homebuyers across Texas, helping them navigate the loan process with clarity, strategy, and confidence.
Sal Trapani, Mortgage Banker/Owner, MJ Mortgage LLC, 281-608-2846 cell, sal@mjmortgagellc.com, www.mjmortgagellc.com, 33130 Magnolia Cir, Magnolia, TX 77354, NMLS 1055510, NMLS 2381195
Source = Link to Article