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Options for Buyers Who Have Spouses with Poor Credit

There are several options out there for those who have a husband, wife or co-borrower who doesn't have perfect credit; in fact this is a very common occurrence.

The first option is to simply buy the home without your spouse included on the paperwork. Since your spouse's credit score won't be a factor, you will be much more likely to get a better mortgage interest rate. There are some drawbacks however. Since the lender is only basing the qualifying factors on you, then your spouse's income will not be included in the decision about how much you can afford. This is particularly important if your spouse makes more money than you. You may not be able to afford the home you have always dreamed about at first. If you choose this option, you will likely have to settle for a smaller home.

Another option for those whose spouse or partner has a lower credit score is to go ahead with the application as joint owners and deal with the higher interest rate that your spouse's low credit score will likely bring with it. Since you will be able to count both of your incomes in the debt to income ratio, there is a good chance that you will be able to finance a larger amount carrying a higher interest rate.

Assuming that you have a large down payment (which is typically considered 25 to 30 percent of the loan, but may vary from lender to lender) you may qualify for a stated-income mortgage, even though a stated-income loan is hard to come by these days. In this situation you would be the only person named on the loan and therefore you would be responsible for repaying the loan. These kinds of loans also typically do have a higher interest rate than a traditional mortgage, however, generally not as high as those who are trying to finance with a low credit score. A stated-income loan will require that you document the type of work that you do however, you will not have to show your actual income.

The last option is to include an additional co-borrower to co-sign on the loan with you. If the co-signers have excellent credit it increases the probability of securing a lower interest rate than you could get on your own. The downside to this is that in the event that you could not repay the loan, the co-signers would also be responsible. This represents a tremendous obligation for the other borrower to take on.

Think about the possibility of either waiting to take out the loan until your spouse can improve their credit rating. It usually takes up to one or two years to see an improvement, which should be works towards anyway. Another option is to go ahead with the loan but continue to work on improving that credit score and refinance later to get a lower interest rate.

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