A mortgage is a financial instrument that you can rely on when you need access to a large amount of money. This is because it has a much higher sanction in comparison to regular retain loans based on the value of the property, and is offered on more favourable loan terms, albeit over a longer tenure.
When opting for a mortgage or property loan, remember that lenders thoroughly assess the applicants and usually look for 4 things in any borrower:
- Attractive credit history
- Stable income
- Low debt-to-income ratio
Meeting these mortgage loan eligibility criteria generally guarantees approval and may even help you get a low mortgage loan interest rate to make repayment easier. To get a larger loan amount, borrowers usually apply for a mortgage loan with their partner or spouse. Here, you apply for a joint loan against property and the lender considers both financial profiles when sanctioning the loan.
Naturally, if your partner has bad credit, you will face problems in your application for the mortgage. For instance, it is commonly known that lenders will assess it based on the lowest of the two credit profiles and offer a mortgage loan interest rate accordingly. This isn’t a favourable outcome and here are tips to note when applying for a mortgage if your partner has bad credit.
Bring in a different co-signer
While it is common for couples to opt for big-ticket offerings like a mortgage or property loan together, it is important to do so only if favourable. If your partner has bad credit, applying with them isn’t a good idea as it may either increase the cost of borrowing or lead you a sanction of a smaller amount. Instead, consider bringing in a different co-signer. Here, your options include parents or siblings. Getting any other family member with a better credit profile can help you secure the loan on good terms and save money in the long run.
However, do note that asking another family member to co-sign your mortgage is a huge ask. They are equally responsible for your loan and the effects of defaults or non-payments are felt equally. So, only opt for this route if you can shoulder the burden without putting your co-signers credit at risk.
Improve your mortgage loan eligibility
Some couples apply for a joint property loan in order to take advantage of the benefits that come with it. Others do it to improve their mortgage loan eligibility or avail a higher sanction, but this isn’t applicable to you if your partner has bad credit. The alternative to that is to improve your eligibility to secure the loan without any issues. Here’s how you can go about it.
- Prepay existing debt: Existing loans and credit weigh down your credit profile, especially if you have multiple forms of credit being serviced. In such situations, you should consider paying off loans that are close to closure. This allows you to increase your loan eligibility and savings.
- Disclose all forms of income: It can be a common oversight for applicants to only declare their salaried income or any gains earned through self-employment while skipping over passive income. Here, any earnings you’ve made through rent or investments can help your case and give you a better shot at qualifying for a property loan on favourable terms.
- Build on your credit score: If you have a high credit score of 750 and above, you could get approved for loan terms without the need for a co-signer.
- Apply for a longer loan tenure: A sure-fire way to increase your mortgage loan eligibility is to opt for a longer tenure. This translates to smaller EMIs, which may be more manageable, but also results in higher interest outgo. However, this can help lenders view your application in a better light.
Apply for the mortgage loan as a solo borrower
As a last resort, consider applying for the mortgage as a solo applicant. In most cases, having a healthy financial profile backed by a steady income and a good credit score is enough to qualify for the loan. While this route may not offer you a sanction as high as you may have gotten with a joint application, it allows you to borrow up to the limits of your profile.
Ideally, opting for a mortgage loan is better with a partner and you should aim to fix bad credit to enjoy the best terms. Doing so protects your financial interests as a family and can secure you the funding you need without unfavorable loan terms.