How Your FICO Score Affects a Joint Mortgage Application

When applying for a mortgage with another person, your individual FICO scores are critical. Lenders will use the lowest median credit score between the applicants to determine your interest rate and loan eligibility. This guide explains how FICO scores work, how lenders evaluate joint applications, and the strategic choices you face when buying a home with a partner.

What is a FICO Score and Why Is It Crucial for a Mortgage?

A FICO score is a three-digit number, developed by the Fair Isaac Corporation, that represents your creditworthiness. It ranges from 300 to 850 and is calculated based on your payment history, amounts owed, length of credit history, new credit, and credit mix. For mortgage lending, this is the primary score used to assess a borrower's risk. A higher score signals lower risk to the lender, which typically translates to a lower mortgage interest rate.

Most conventional loans require a minimum FICO score of 680 for approval. For borrowers with lower scores, government-backed FHA loans may be an option, allowing scores as low as 580 (or 500 with a larger down payment). The following table outlines common loan types and their general credit score requirements.

How Do Lenders Evaluate Credit Scores for a Mortgage?

Lenders do not look at a single credit score. They pull a tri-merge credit report from the three major bureaus: Experian, TransUnion, and Equifax. This report shows your credit history and score from each bureau. The lender then identifies the median score—the middle number of the three—for each applicant. For example, if your scores are 720, 740, and 710, your median score would be 720. This median score is what the lender uses for qualification purposes.

Should My Partner and I Apply for a Mortgage Jointly or Individually?

The decision to apply jointly or individually hinges on a trade-off between income and credit score. Applying jointly combines both applicants' incomes, which can help you qualify for a larger loan amount. However, the lender will base your interest rate on the applicant with the lower median FICO score.

Based on our experience assessment, applying alone may be advantageous if:

• Your partner has a significantly lower credit score. Using only your higher score could secure a much better interest rate.
• Your income is sufficient to qualify for the desired loan amount on its own.

The primary downside to applying alone is that the lender will only consider your income, not your partner's. This could reduce the maximum loan amount for which you qualify. It is important to note that you can still have both names on the home's title (signifying ownership) even if only one person is on the mortgage (signifying debt responsibility).

What If My Partner Has Bad Credit?

If you apply jointly and your partner has a low credit score, the lender will use that lower score to set your interest rate. This can cost tens of thousands of dollars over the life of the loan. In this scenario, you have two main options:

1. Apply Individually: Use only your income and higher credit score. This protects your application from the lower score but limits the borrowing power to your income alone.
2. Postpone and Improve: If your combined income is necessary, consider postponing the purchase to work on improving the lower credit score. This involves reviewing credit reports for errors, paying down debts, and making all future payments on time.

Conclusion Navigating a joint mortgage application requires a clear-eyed view of your financial profiles. The lender will always use the lowest median credit score to determine your rate. Carefully weigh the benefit of combining incomes against the potential cost of a higher interest rate from a lower score. Before applying, check your credit reports from all three bureaus and understand your median scores to make the most informed decision.