house buying: one person with good credit, one with more money

May 12, 2023 8:38 AM

My partner and I are about to get into combining houses. The problem and source of my panic: she makes mid 5 figures and has immaculate credit. I make low 6 figures, live well below my means and have no debt besides my mortgage, and have terrible credit due to various issues around procrastination and anxiety.

We both have a ton of equity in our houses but may have to try to finance the third house right now and then quickly sell the existing two.

* We each have around $120k in equity and are looking at ~$400k houses.
* Neither one of us has any debt besides our mortgages.
* Not married but can be in 24 hours if need be.
* We are liquid to the tune of maybe $50k right now.

Is there anything smart we can do to leverage both her credit score and my income to try to get a loan for the new house? We are not super worried about terms because we can look to refinance or make other adjustments once the old houses sell, which should happen pretty quick in this market. I know this is a bit wide ranging; the main issue is her credit vs my money. Thanks so much in advance for any information or advice!

posted by ftm to Work & Money (12 answers total)

Few suggestions, sell the other houses first, try to fix your credit, and sock away as much $ as possible.

Not sure where you are, but the market where I am (DC/MD/VA) is very competitive. My next door neighbor had his house under contract in 2 days! I can't image an offer contingent on the sale of 2 houses would win a bid. On top of that you don't have a lot of cash on hand either.

If you go in a mortgage together, the person with the lowest credit score is setting the terms. I know you can refinance, but you'll still be paying quite a bit more and limit your financing. If you sell your houses and have more cash in hand, your partner can apply for a loan on their own. (Obviously get a lawyer to cover the agreement between the 2 of you). That would be the only way to really leverage your situation (as long as she can qualify).
posted by jraz at 9:04 AM on May 12, 2023 [2 favorites]

The question I'd ask is How can I repair my credit? Late payments do ding your credit, but you may be able to address some of the issues. Also, you'll have a potential down payment of 50 - 70%, so mortgage shop. There was a local bank that used to hold mortgages and could offer different loan terms because they didn't sell the mortgage.
posted by theora55 at 9:21 AM on May 12, 2023 [1 favorite]

I am not sure if this is answering the question you're asking, but have you looked into whether it might be possible to raise your credit score? Especially given that you have no other debts, it's quite possible that steps like disputing errors, becoming an authorized user on her credit cards, Experian Boost, and asking for goodwill deletions from past creditors might be able to raise your score quickly.
posted by mosst at 9:23 AM on May 12, 2023 [4 favorites]

It does sound like your partner should apply for the loan on her own if at all possible. I'm sure this depends on the lender, but I was able to include the rent my partner was going to pay to live with me as a source of income when applying for a mortgage. This doesn't let you fully leverage your income, of course, but perhaps it ups hers enough to qualify?

If you have to sequence it the way you describe you should definitely only make an offer with a home sale contingency (for one of the homes - I agree it seems unlikely that most people would consider an offer contingent on the sale of two). If you're right about your home values, that would give you at least $170,000 to throw at the purchase by closing. A $230,000 mortgage, with ~40% down, seems pretty doable with mid-five figures (or maybe mid-to-upper if your contributions are counted?) and great credit.

It sounds like there is some extenuating circumstance that means you absolutely have to put in an offer for the third home now, but if not, I strongly 2nd jraz's suggestion that you sell at least one of your places before starting to seriously house-hunt. The cost of storage and temporary housing would be pretty minor in comparison to the size of this whole transaction and the risk and stress you'd be taking on, and you'd be much better situated to get an offer accepted if you don't need to include a home sale contingency.
posted by exutima at 10:28 AM on May 12, 2023

Few suggestions, sell the other houses first, try to fix your credit, and sock away as much $ as possible.

Not sure where you are, but the market where I am (DC/MD/VA) is very competitive. My next door neighbor had his house under contract in 2 days! I can't image an offer contingent on the sale of 2 houses would win a bid. On top of that you don't have a lot of cash on hand either.

If selling both houses now won't work, I think it would be helpful to sell one of the houses sooner, so that at most you'd have a single sale contingency when you go to buy.
posted by Dip Flash at 10:35 AM on May 12, 2023 [4 favorites]

Assuming your current houses are also in the 400k valuation range check whether you can transfer one of the mortgages to a new property. One place I lived this was pretty straight forward with the mortgage I had as long as the remaining debt on the mortgage was less than a current evaluation of the new property. Transferring skips all the qualification steps. It did require a contingency sale though. You couldn't hold the mortgage for even one day with no asset to back it.
posted by Mitheral at 10:44 AM on May 12, 2023

It may be worth chatting with an independent local mortgage broker (see if you can get a recommendation from local friends): we're married and I have stellar credit, but make way less + my income to debt ratio is out of wack due to student loan debt/PSLF and how it's accounted for.

We met with the broker with the original intention of starting our search in earnest a year later. So you don't need to be in the shopping-right-now phase. The whole point of our meeting was to see what we needed to do to get things in order (both credit score wise and house selling wise).

The mortgage broker basically took our information and plugged it in a few different ways to see how to get the best rate possible for how things currently were, then what things could change in order to make things even better, which sounds like could both provide you direction and help calm some of your anxieties. Since you're not married but willing to, they may able to figure out under what circumstances it would help vs be a wash vs hurt.

We wound up finding a house we loved way faster than intended, for less than our original goal (so I think he made a bit less on us than anticipated), so we weren't able to do much of the get things in order plan, but the broker still wound up being an awesome resource for us through the whole process. Since he was local he had a fair number of referrals he could make if we needed it. So just meeting isn't a commitment to anything.
posted by ghost phoneme at 11:13 AM on May 12, 2023 [1 favorite]

A lot of this depends on what you mean by terrible credit. The two biggest questions are: have you paid your mortgage timely, and if not how long ago was it last 30 days late? And what is the nature of any other bad credit? Collections, repos? Bankruptcy? There can be a lot more flexibility than you might think, especially if any bad history is older and you are not currently using credit.

I would highly recommend looking into any homebuyer education/counseling programs in your area, which can help you assess where you really stand, and reaching out to a reputable local mortgage broker- they will be able to tell you what programs you are currently eligible for.
posted by tinymojo at 11:51 AM on May 12, 2023

I don't have the latest numbers but like 85% of the home credit market dollars right now are going to people who have 800 (of 850) credit ratings and higher. Another 10% is people between 700-800. The rest is below 700.

So if you credit rating is in the 600-700 range, then you are fighting for about 5% of the market dollars, even if you sold your houses and had 50% down. That would really help though. So yeah, I recommend you sell the current houses, book that equity into a new home, and work to raise you credit score as best you can.
posted by The_Vegetables at 1:07 PM on May 12, 2023 [1 favorite]

Mortgage broker. You don't pay them, the bank (or whoever the lender is) does. I wouldn't buy a house any other way. They know everything, know all the tricks, all the deals, and make things smooth.
posted by seanmpuckett at 2:42 PM on May 12, 2023

Talk to a mortgage broker. They look at so many different variations of household finances and situations that they'll have an idea of what's likely to work for you both, and whether you can improve your credit score.
posted by plonkee at 6:07 AM on May 13, 2023

This was my husband and I in 2016 but we didn't have the equity you do as we were buying our first home. Our mortgage broker gave me a credit score number we both needed to be above, and recommended a service. That service cost something like 250 total IIRC, and we hit the score numbers we needed in a few months. When we financed the house, we paid a small interest premium. I think we paid for another year and when the time was right, we refinanced. I don't think we'd have considered that route now because interest rates are so much higher. But that's what we did.
posted by pazazygeek at 9:35 AM on May 13, 2023