Mortgage Qualifying 101 – Why can’t you use my spouses income?

When qualifying for a mortgage, the borrower(s) need to meet three main qualifications.

• Income – There are specific front and back end ratios depending on the mortgage program. And sometimes you can exceed such ratios with compensating factors.
• Credit – Mortgage programs now require credit scores, aka fico scores. You also need to show good credit performance on how you can handle your credit or that you have established credit.
• Assets – Depending on the mortgage program, you might need assets to close and or to show a specific number of reserves.

I want to talk about a specific issue when there could be more than one person on a mortgage when it comes to mortgage qualifying or income qualifying. Many will state that they should be able to qualify for the mortgage because their spouse also has a job and makes money. Unfortunately this doesn’t apply if that person doesn’t meet the basic credit requirements. And if you think about it, it kind of makes sense. Why would someone lend another money if they didn’t show any credit worthiness. Yes, we know there are circumstances, which some loan programs are more lenient on. But it all starts with the credit scores now. Many lenders and loan programs now require a 640 credit score. Some will go down to a 620 and there are some still advertising to 580. All I can say, even if someone could do your mortgage below a 620, it’s going to be very very costly. How costly? Interest rates usually higher by one percent or more with higher points. And don’t fall for the trap when the loan officer says, “don’t worry, you can refinance to a lower rate in 6 months.” Sorry, my crystal ball broke decades ago.

There are two other things to think about when it comes to mortgage qualifying with income and or credit. You can read about non occupant co-borrowers and community property states here for the other requirements. Non-Occupant Co-Borrowers & Community Property States.

Realtors - If you have a client asking you this question, you can send them to this post, instead of trying to explain it.