When discussing credit with our borrowers, we often hear something like this: “My credit score is only 670, but don’t worry; my wife’s score is over 800!”
Unfortunately though, lenders correlate to the worst credit on the loan application when there is more than one borrower.
LOWER MIDDLE SCORE
Most mortgage lenders check credit with the three major credit bureaus, all of which assign a credit score to every borrower.
Lenders use the middle of the three scores for qualification purposes.
And, if there is more than one borrower, lenders correlate to the “lower middle score.”
So, if one co-borrower has a low middle score, it makes no difference at all if the other borrower has a sky-high middle score.
This can significantly affect interest rates and qualifying ability.
As we remind readers often, credit scores can easily influence a borrower’s interest rate by as much as 1%.
SOLUTION: TITLE ONLY
If a co-borrower’s credit score is adversely impacting the interest rate, one solution is to remove the borrower with the low-credit score from the loan altogether.
BUT, lenders can only do so IF they do not need that borrower’s income for qualification purposes.
If lenders don’t need the income from the “bad-credit-borrower,” they can still leave him on title but remove him from the loan.
This is fairly common and such people are referred to as “Title Only” buyers.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167
