In the case of a divorce, it’s very common for the spouse who keeps the home to remove the other spouse from the loan. In a similar situation, it’s also equally common for a first-time home buyer who doesn’t have enough income to qualify to ask a parent or relative to co-sign – that person too must add their name to the mortgage.
A little different is another situation in where removing or adding a person to a loan could qualify you for a better interest rate. The difference in that minimal credit score and having someone with a “good” credit rating could mean as much as 5% of a higher rate for the term of the mortgage.
So let’s consider this – a couple is purchasing their home on a conventional loan, and they have individual credit scores of 760 and 670. The underwriters will price the loan based on the lower of the two scores. A half percent interest on a $400,000 30-year mortgage could have close to $110 a month difference.
There could be a solution to this dilemma, assuming that the one with the higher credit score had enough income to qualify for the mortgage separately. If that is the case, that person would be eligible for the lower rate.
Here’s another scenario – a couple has enough income to qualify for a mortgage but because one of the parties has a lower credit score, it will be priced higher. This is a case where having a parent or relative added to the mortgage as a non-occupying borrower will help with that credit score. Interest rates are determined on the lowest middle of three scores for the borrowers applying for the loan.
Assuming the parent’s (or relatives) score was higher than the lower score of the couple, it could improve the rate applied to the mortgage loan.
Finding and trusting a mortgage professional is very important. They can provide you with alternatives to situations that could be worth tens of thousands of dollars over the life of the mortgage – and, in some cases, can make the difference in being approved period.
Your real estate professional is more than willing to make a recommendation on a good mortgage professional who will fit your needs and situation.
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