Deciding to spend the rest of your life with someone is usually a romantic moment that includes sentimental words and acknowledgments of love. “Will you marry me?” is rarely followed by “can I see your credit report and score?” But in today’s world, maybe it should be.
You might be marrying the love of your life, but you’re also marrying their credit history and that credit history could affect your credit future, especially when it comes to purchasing a new home together. Since most new families eventually buy a house together it’s in your best interest to find out what your new spouse’s financial past is like before you start looking for your dream home.
While you might have a credit report that reads like the report card of an A+ student the significant and even minor issues on your spouse’s credit report could prevent you from getting a mortgage to buy a home. You could be presented with high interest rates or simply be rejected all together.
Here’s what you need to know about how your spouse’s credit history can affect your joint credit future.
Scores & Qualifying
The good news is that when you get married you both keep your own credit scores; they don’t automatically become one once you’re married. This means that if you want to make a purchase on your own, your spouse’s lower credit score shouldn’t affect your ability to do so. The problem arises when you want to make a joint purchase (like a house) or apply for a loan together. While your credit scores and histories remain separate they also become connected. Here’s what potential lenders look at.
- That you both have stable and reliable incomes. That you both will be able to be financially and legally responsible for the mortgage. Therefore, each of your credit histories are very important.
- That each of you has a high enough credit score. This depends greatly on the lender and how big of a mortgage you need. But anything lower than 700 and you might experience some difficulty.
- That there is consistency between your credit scores. As we discussed, both of your credit scores will be taken into account, therefore your high credit score cannot and will not compensate for your spouse’s low credit score.
If you know that your new spouse’s credit score is low then it’s in both of your best interests to discuss it and work together to improve it before you get your hearts sent on purchasing a home together.
Bankruptcy & Foreclosure
Even if you know for sure that both of your credit scores are in fact high enough to qualify for a mortgage there are other factors that could potentially affect your ability to be approved. This is why it’s of the utmost importance that you both discuss any past financial problems before you decide to purchase a new home together.
If your spouse was previously involved in a foreclosure or bankruptcy then they could still be in what lenders call a “seasoning period”. After a negative financial situation a person sometimes has to wait months or even years before they can apply for new credit or a new loan. There are lots of varying factors and every lender is different, but this could potentially prevent you from being approved for a mortgage.
Even though your spouse may have been able to rebuild their credit score you will have to wait until they are no longer in a “seasoning period” before your can be approved for a mortgage.
Community Property States
If your spouse has had some financial issues in the past then you might think that simply leaving them off of the mortgage application is the most logical thing to do. While this might seem like the best option, depending on where you live it might not work. In Canada every province has their own laws that govern community property so it’s important that you research the laws that exist in your home province.
But, generally speaking certain community property laws can allow lenders to take into account your spouse’s credit history even when they aren’t on the mortgage application. Obviously there are many factors that can affect the lender’s decision to do so and they might not care about your spouse’s past financial mistakes but it’s definitely something that you should be aware of.
Do your research as this kind of law varies province to province, lender to lender and loan to loan.
If you’ve recently been married or are now just deciding to buy a house with your spouse then being up to date on your credit histories and credit scores should be a priority. Being open and honest with each other about any past financial issues will only help. Once any issues have been identified then it shouldn’t take too long to fix them, if you both work together. If you want to buy a new home together then you both need to be equal financial partners. Take time and work together and you should be able to buy your dream home together before you know it.
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