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home loans and credit scores
I am not in the market for a house yet, but I'm newly married and we're starting to save for 3-5 years from now. I know the better my credit, the lower the interest rate we get, but I have a couple questions.
1) Owning a home seems to be a large bump to credit scores, but we clearly won't own a home when we're shopping for our first home. Is that factored into first time home buyer options? I know there are special programs but I am a bit overwhelmed. Can anyone point me to a clear article or book on the subject?
2) My husband's credit isn't terrible, but I'm cusping top tier and he is far from that. How much will that impact the rates we can get? AKA, how much should we work now to improve his credit down the road, when mine is already great?
TIA
Re: home loans and credit scores
1. Home Buying for Dummies = book. The lender will look at your application, which will include length of employment, length of residence at your current rental place, credit report (for account types, balances, available credit compared to balances owed, payment history, and whether or not any negative data like collections, charge-offs, or slow pays exist), debt to income ratio (a comparison of how much income you earn to how much outstanding debt you have), and they will look at collateral (the property you want to buy, its age, market value, condition, etc. - they do this by way of some sort of appraisal), and your down payment. Being a 1st time home buyer may be a factor, but it will be a small one. Lenders see this all the time.
Yes, there are special programs...VA loans are for military, there are USDA loans for rural areas, there are FHA loans for people with low down payments and other situations, and there are conventional bank loans, which you would get at a Wells Fargo, Chase, US BANK, or credit union/bank type place.
2. You can always improve his credit - it cannot hurt. How far is he from the 800's or high 700's (considered top tier)? Are we talking 50 points, 200 points, 100 points?
DH's credit comes into play if he is going to be on the mortge. Is there option to finance in your name only? meanwhile you can work to fix any negatives on his credit report, and pay off consumer debt as well as increase savings.
You do NOT need to carry a balance to build credit.
Even if you finance in your name only, if you are in a community property state, they are going to run his credit. This just happened to us when buying a home in Texas in my husband's name only, and that was even a VA loan (ie he's the veteran, not me, and the loan is guaranteed by the feds so no risk at all to the lender). I have great credit and our rate was already locked in anyway by the time this came up (of course a week before closing), but they did run my credit and as I was unemployed at the time, they made me extend my student loan term to reduce the payment.
Not that this is the point of the OP, but unless your loan is insanely low (ie- below your husband's eligibility level) this isn't necessarily true.
Our VA loan is for $263,000, but it's only guaranteed for up to $69,000 because that's all that DH is entitled to based on a VA calculation using our county's maximum VA loan limits. Our lender is assuming some risk, and yours is likely doing the same.
If their relationship crumbled, then yes, if her name were the sole name on the mortgage note, then she would be left holding that bag to pay it. But that also may vary state-to-state. She should check that out.
If their relationship remained intact, then putting the loan in her name only protects her husband from having that on his credit IFthey ended up in financial trouble and lost the house. Her credit would be dinged but his wouldn't.
The other downside is that he does not get to use the mortgage to help strengthen his credit if his name is not on the loan note.
This is how my DH and I set it up. The home loan is in my name only (I had WAY better credit) but the house is deeded to both of us. Besides, he already know if things go south the house is mine! lol j/k
Same here - my husband had to go through bankruptcy a few years back and there is no way we would have been able to get a mortgage with both of us on there. My credit history is pristine and my score very high, so this is just what works best for us. When we close on the house (at the end of May), he will be added to the deed, but will have nothing to do with the mortgage.
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