(All stories shared on Lending A Hand contain fictitious names with changes to insignificant details. The privacy and trust of our customers is our top priority.)
Bonnie and Clyde (fictional names, of course) called us up the other day to get qualified for a home purchase. Apparently the robbery profession isn’t what it used to be. Anyway, we started through the questions to complete a pre-qualification, including:
- Legal Name
- Home Address
- Current Employer
- Job Title
- Length of Time with Employer
- Income
- How Often Pay Received
- Type of Pay
- Hourly/Salary
- Bonus
- Overtime
- Commission
- Self Employment
- Etc
- Assets
- Checking
- Savings
- Investments
- Retirement
- Gifts (from relatives)
Once this information was gathered we had a couple of choices: we could run a credit report to see what the score looked like or we could discuss the debts as Bonnie and Clyde knew them. In this case Bonnie and Clyde decided to run the credit report to so we could a listing of all of their debts as well as the scores. Here is how it turned out:
Bonnie
- 563 Experian
- 581 TransUnion
- 593 Equifax
Clyde
- 536 Experian
- 544 TransUnion
- 538 Equifax
Our most recent post discussed the representative score for a mortgage. In this case the representative score would be a 538. 538 credit score is not sufficient to qualify for A-Paper mortgage options so we discussed Bonnie and Clyde’s options with them:
Options When One Borrower’s Scores are Higher than the Other:
- Remove the borrower with the lower score
- Change borrowers
- Work to increase the credit score(s)
By removing the borrower with the lower credit scores you can effectively increase the representative score for the loan. In this case, if we removed Clyde, the representative score would go from 538 to 581 (removing Clyde removed the lower of the two representative scores so now we just go with Bonnie’s)
In some cases there are opportunities where we can remove a borrower with a low credit score and use another person who will be occupying the home. An example we see commonly is multi-generational families living together. If the husband and wife are looking to purchase with the husband’s mother, we now have 3 borrower options (husband, wife and mom). If say, husband can not qualify due to credit scores, mom may be added to the loan in place of the husband.
Although this is the hardest option which typically takes longer than the other options this is the option most customers must opt for because the other options are not available to them. In a situation like this your mortgage lender may have options to assist you in methods to increase your credit score. If not, you may also seek out a credit repair company to assist you (BEWARE: some credit repair companies are nothing but scams to take money from people in desperate situations so do your research or get a referral).
In our case, Bonnie made the majority of the income so removing Clyde was an option that worked well since at the time we assisted Bonnie and Clyde the minimum credit score required was a 580. When you remove a borrower from the loan their income is removed too. This is why in Bonnie and Clyde’s situation, Bonnie making most of the money and having the higher score worked to their advantage.
Credit Requirements (Not Just Credit Score)
When we looked at Bonnie’s credit we not only needed to make sure she met the credit score requirement at the time (580) but we also needed to make sure she met the credit requirements for the loan in which she was applying. Bonnie was interested in FHA financing due to it’s lower down payment, lower monthly payment and easier qualifications. Each situation is different so there is no way to list the exact qualifications that must be met but for a general idea of what FHA requires check out our post about FHA Mortgage Loan Requirements.
Bonnie did meet the credit requirements and from the initial questions her qualifications looked good. The next step was to complete the pre-approval process.
Lending a Hand
Scott Wynn
The Wynn Team
Tags: Credit, Qualifying, Strategies
