How to Finance a Home if One Spouse Has Bad Credit

Qualifying for a home mortgage is easier using two incomes.

Qualifying for a home mortgage is easier using two incomes.

Home mortgage lenders look for couples with regular income and the ability to meet monthly payments. When one spouse has bad credit, it makes a home loan harder to find. If you're part of a credit-challenged couple, don't despair that you'll never be able to buy your own home. It takes a major effort, but it is possible to obtain a mortgage loan.

Mortgage Qualifications

It doesn't matter how much money you and your spouse have in the bank, your monthly-earned income must be enough to make the mortgage payments. Putting a huge amount of money into the house or condo down payment is one way for couples with one partner with credit dings to come up with an interested lender. Down payments range from no down to 20 percent, but couples with credit problems can offer more -- enough for the lender to feel comfortable about getting the house back, should the lender need to foreclose. This amount might require up to 50 percent of the home's value. Paying on this smaller mortgage for several years allows you show your credit worthiness as a couple.

Cleaning Up Credit Reports

Cleaning up bad credit takes time and major effort. Removing errors and small dings make the report somewhat better for lenders, but when the credit report is an absolute wreck, this won't help with an immediate loan. A bad report includes a few late pays on revolving credit and several unpaid accounts. The disaster credit report includes accounts closed by creditors and a bankruptcy. Repairing this account takes several years to re-establish responsible credit use. Using a new credit card responsibly is the first step to rebuild the spouse's credit report, but bankruptcies stay on credit reports for at least seven years under most state laws.

Presenting the Qualified Spouse

You're a married couple, but under the credit laws, banks must consider each spouse for separate mortgage loans. If the spouse with the good credit record also earns enough each month to cover the mortgage payments, this spouse can buy the house as a married person holding the property as the "sole and separate property."

Pay More

If you're intent on keeping the names of both spouses on the property deed, shop for a lender willing to take on your loan. This is more challenging, but there are private lenders who love to loan money at high interest rates. These lenders charge a sliding scale for "difficult-qualifying" mortgages, and depending on the degree of credit report damage, you may end up paying an arm and a leg for the mortgage. Find private lenders using a local loan broker. There is one advantage to this loan. Once you have the mortgage and show a responsible payment pattern, it's then possible to refinance your mortgage at a better interest rate from a mainstream bank lender.

About the Author

*I have written chapters and articles for Oxford and Harvard University Presses, ABC-CLIO, and others. Arcadia Press published two of my local history texts and I have also written for numerous "article sites," including Pagewise in 2002. My "How to become a...real estate agent" is available as an online text from a Canadian publisher. *I taught writing courses at a branch campus of Indiana University. *I held a California real estate license and have remodeled four of my own homes and advised others on financing homes, repairing credit to qualify for loans, and managing construction (including meeting local, state, and federal regulations for restoration and development grants). *I served as an AmeriCorps*VISTA volunteer and wrote nearly $75,000 in small education grants (under $1,000). *My travels include frequent road trips in Canada, Mexico, U.S., and Europe. I attended school at Cambridge University and used this as a base to explore the UK and Europe.

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