When deciding to purchase a home, there are certain things you need to know and understand, especially if you are considering getting it with another person. You need to know the credit score of the person you want to get the home with. Also, you need to understand how your co-borrowers credit scores would affect the home purchase.
This article sheds light and gives insight into the domain of real estate.
FICO Score
This is the most commonly used and accepted credit scoring system. FICO is an acronym for Fair Isaac Corporation, the company that developed this system of scoring credit. The way it works is quite simple; you are given a numerical value ranging from 300 to 850. This digit value states your creditworthiness through your previous payment history. It also weighs the length of your credit history, types of credit, and new credit.
Fico scores or values are usually used by lenders as a reference to determine the level of risk of the borrower. If you are looking to obtain a loan or buy a home, you need a firm understanding of your FICO score.
Lender Validation
In most situations, lenders will examine three credit scores from each of the credit bureaus (Experian, TransUnion, and Equifax). They’d then compute them and use the median score of the three for your application.
In situations like this, the higher the score, the better the interest rate you’ll be given. Most conventional loans require at least a 680 score, so this is a safe score to aspire to. If you have a lower credit score, FHA loans allow credit scores as low as 580, even lower. A down payment is usually required for credit scores as low as 500.
Applying Alone or with a Co-borrower.
Okay, so it’s important to note that making the best decisions in a home purchase is usually down to what makes the most financial sense in a particular situation. In deciding to include a co-borrower or spouse, you’ll have to weigh how beneficial their addition would be to the deal.
When it comes to obtaining loans, you either qualify for it, or you don’t. Typically, if in a particular situation, the only way to qualify for a loan is to include a co-borrower, then you have to do it. If your credit and income are adequate to qualify independently, applying with a partner may still be the better option. Each scenario has its quirks.
My Co-borrowers’ credit
Typically, in cases of joint applications, lenders use the lowest credit scores of the two borrowers. If your median credit score is lower than your spouse or partner, lenders will base interest rates off that lower score. In a situation where it’s the other way around, it might make more sense financially to apply alone. The drawback is that it limits the deal to your income value and not the sum of both parties. With better credit scores, your income can still lower the loan amount for which you qualify.
Making the best choice for your situation can be achieved by weighing your options, co borrowers credit scores and coming to terms with the better financial scenario. Good Luck!
