Real Estate Loans: What If One Spouse Has a Bad Credit Score?

There are several possible options to deal with this issue, depending upon the exact situation.



For A paper, both spouses must qualify, credit score-wise. The way around this is a quitclaim to the spouse who has a good credit score as sole and seperate property. The catch is that then the good credit score spouse has to qualify for the loan on their own. If the other spouse is the one that makes all the money, if the good score spouse is in a profession where the needed income isn't believable for stated income, or a whole list of other possible reasons, you may have to go sub-prime.



For sub-prime, the spouse who makes more money is the one that will be used as the determination, so as long as the second spouse is in the same vague general ballpark, scorewise, you can still use both incomes to qualify. If one spouse makes slightly more money but the other spouse has a much higher credit score, it can be to your advantage to do it stated income with the spouse who has the better score primary. You can't do this if one spouse is a doctor and the other works fast food, but you can if they're both in the same industry, or in industries where the incomes are roughly comparable, so long as the job titles and employment history don't render the claim unbelievable. The classic example of this working is both spouses in sales, paid on commission. In some instances, a quitclaim can still be the way to go.



Now if you do a quitclaim, the property doesn't have to stay quitclaimed. As soon as the loan funds, you can quitclaim it back to husband and wife as joint tenants with rights of survivorship, or whatever you want. Quite a few spouses are understandably reluctant to give up all ownership interest, but it's a temporary measure; it doesn't have to stay that way. As soon as the loan funds, you get the spouse who qualified for the loan to quitclaim it back to husband and wife, or the trust, or however they want the vesting to be. The better escrow officers I work with will usually have the quitclaim back made up and sent out for signatures without even being asked (I found this out one time when my clients didn't want it quitclaimed back, and called me when they got the form in the mail. I just told them to shred it, and called the escrow office to tell them not to bother).



Caveat Emptor

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