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What If Spouse Has Horrible Credit?

We frequently get husband/wife borrowers where one spouse has stellar credit and the other has awful credit.

Most people know that the solution is simply to do the loan in the name of the “good-credit-spouse” only, as long as the good-credit-spouse has sufficient income to qualify on his or her own. The bad-credit-spouse can do what is called “title only”, where he or she goes on title to the property, but does NOT go on the loan.

This works for FHA too. FHA allows loans in the name of the good-credit-spouse only. The issue with FHA, however, is that the bad-credit-spouse’s debts cannot be ignored. FHA requires the inclusion of the debts, for qualifying purposes, of a spouse even if that spouse is NOT on the loan.

Hence, if the bad-credit-spouse has a lot of consumer debt or too much debt, he can prevent the good-credit-spouse from qualifying. We see this often with bad-credit-spouses having too much student loan debt.

With Conventional Financing, both the debt and the credit of a bad-credit-spouse can be completely ignored.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646

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