How is an interest rate determined on a joint mortgage?

March 26, 2006 2:28 PM

My wife (who only works part-time) and I will be applying for a joint mortgage soon. My FICO score is 800; hers is 670. How will a lender determine our interest rate when we have such different scores?
posted by boognish to work & money (7 answers total)

I have not foggiest informed notion. But with the FICO score you have I would be willing to invest some of my retirement funds with you. I did a little googling and the trend seemed to be that the FICO score of the highest earner is the one that will be used. However, that was not universal. Remember, banks want to lend money and there is the opportunity to negotiate and shop.. Good luck
posted by rmhsinc at 2:55 PM on March 26, 2006

Your wife's is probably close enough to 700 (and yours is so very far over that) that I doubt her lower score will in any way be a hindrance, if that's your concern.

I don't think there's a hard and fast rule for this, that banks and lending institutions have some leeway to set up their own procedures for determining how to translate credit scores into rates. I can't imagine that you'd suffer any worse than having your score based on your average score, which is 735, still a damn fine number.
posted by middleclasstool at 3:10 PM on March 26, 2006

One nice thing about mortgages and other large loans is that the FICO score is only one thing that banks consider. Income, where you're purchasing, and so on will also be important factors. So it's not so simple as "one person has a lower FICO score; therefore you get a mediocre interest rate." Also, banks have different formulas and considerations they care about most.

So the upside is that (1) with your excellent credit, you should be able to get an excellent rate, and (2) this will vary somewhat from bank to bank, so definitely shop around.
posted by raf at 3:23 PM on March 26, 2006

Lenders take the lower of the two FICO scores and use that when underwriting your loan. A 670 score is pretty good, but depending on what type of loan you are trying to get and how much you are putting down, your wife's score could cause a slightly higher rate or points being paid to the lender.

Most lenders underwrite loans to Fannie Mae or Freddie Mac standards on conventional loans. Fannie and Freddie have guidelines that state if the representative credit score on a loan is less that "X" than we will charge you the lender "Y" and in turn the lender will charge the borrowers that amount.

680 and lower tends to be the cut off for certain products. For example, if you are going to obtain a cash out loan on your home and will have an LTV of 75%-80% with a credit score of 670 then you could be charged .5 (half a point). The lower the credit score the more risk to the lender and to Fannie and Freddie.

Another thought is to not have your wife on the loan if you do not need her income to qualify. She can sign the Deed of Trust/Mortgage but not be on the note. I worked in the mortgage industry for 8 years and saw this all the time. I can tell you that when we saw a credit score of 800 it was a cake loan.

My e-mail is in my profile if you have any more questions.
posted by brownbeards at 5:18 PM on March 26, 2006

Depending on your income, you can get the mortgaged based entirely on your FICO score and then, in the final bit of paperwork, make sure she's also on the deed.
posted by donovan at 5:24 PM on March 26, 2006

Yes, my husband and I did this (me only on the mortgage, both on note and deed) with our first house, as his credit was atrocious and mine excellent. In the 2 intervening years he worked on his credit and for the second house we both got on the mortgage. It made sense because we got a no-doc loan based on my credit alone which wouldn't have been available if he was on the app.
posted by miss tea at 4:36 AM on March 27, 2006

I had a higher score than my wife (by 100+ points) when we purchased our first house 1.5 yrs ago. She also had some outstanding student loans. So after getting some preliminary quotes from a few lenders (a difference in the interest rate of one half of one percent), we decided to get the mortgage in my name only and both of us are on the deed. It doesn't take but a few minutes to get individual and joint quotes...
posted by iurodivii at 6:58 AM on March 27, 2006