How to Qualify for a Joint Mortgage When the Co-Borrowers Have Bad Credit

A joint mortgage is traditionally signed by a married couple in order to share the burden of paying off a home loan. Both parties will have to be present on the application and take part in the negotiations. This can present a problem when one of the two people has bad credit. Luckily, there are ways to overcome this problem. 

Primary Applicant Provisions

Most joint mortgages are not a fifty-fifty co-borrower arrangement. Instead, a mortgage loan has a primary applicant and a co-borrower. The two parties can combine their income in order to achieve a better debt to income ratio. Playing to the favor of the borrower, though, the two parties do not need to split their credit scores down the middle.

Traditionally, only the credit score of the primary borrower is used to determine mortgage interest rates. This means the person with the higher income of the two will be able to use his or her credit score to override the other person. Unfortunately, it is possible the person with the higher income has the lower credit score. In this case, you may need to consider alternatives to secure a low interest rate and qualify for a mortgage.

Single Applicant Option

If one of the two applicants on your mortgage has good credit, then you may consider providing a single application. This limits the ability for two of you to combine your incomes to create a more beneficial debt to income ratio. However, it is possible the income of a single borrower will be sufficient to secure the mortgage loan needed.

In cases where one applicant has a high enough income and credit score to secure a mortgage at a relatively low rate, the other applicant should be left off the mortgage entirely. This presents some risk if there is a default or divorce. A default would end up falling totally on the shoulders of the single applicant. Similarly, in the case of divorce, the applicant who maintains the mortgage will be a 100% legal owner of the asset assumed through the mortgage.

Other Options

It is possible that neither you or your co-borrower has a credit score high enough to qualify for most standard mortgages. In this case, you will need to work harder to source the loan through more thorough applications or by seeking alternative lenders. 

You can improve your application by providing supplemental information about your ability to repay the loan. One way to do this is to add additional collateral, such as a savings account or stock certificate, in order to secure the loan. You may also consider issuing statements to your potential lenders about why your credit score is low and how you are working to resolve the issue.

Seeking alternative loan options may be the last chance for two borrowers with low credit to get a mortgage. You may consider approaching sub-prime lenders, but these lenders tend to offer the worst deals on a mortgage. Consider opting for a 401k loan if you have the funds available to do so.