Has your partner got a lower credit score than you? This may be problematic when you apply for a joint home loan. However, there are ways to get around this.
You’ve met the love of your life and now you want to make the ultimate commitment. No, it’s not marriage – it’s buying a home together. After all, more than 40% of divorces happen within 10 years of marriage, while most home loans are taken out over 20 or 30 years.
But what happens if one of you has a stellar credit score while the other has a patchy credit history? Here are six steps you can take to help get your loan application across the line.
When you apply for a home loan, your lender will consider your combined credit scores. If one of you has a poor score, you may receive higher interest rates – or your application may be rejected altogether.
At the start of any serious relationship, it’s a good idea to be open and honest about your financial history. Get everything on the table so that you can reduce the risk of any nasty surprises later on.
Make sure both partners’ names are on any shared obligations, such as vehicle finance agreements and. Lenders are likely to be impressed by couples with a history of paying their bills on time and in full, even if one partner has a patchy past.
If one of you has a poor track record when it comes to money, it would be wise to consult a financial adviser before you buy a home together.
Depending on their advice, you may need to postpone your plans until you’re both more financially secure, or you may have to adjust your expectations regarding how much you will be able to borrow.
Ideally, you will take some time to build your credit scores and, within five years, your reports could be default-free and your deposit will have grown – both of which will lead to more favourable terms for your joint home loan.
Make sure both partners’ names are on any shared obligations, such as vehicle finance agreements and cellphone contracts. Lenders are likely to be impressed by couples with a history of paying their bills on time and in full, even if one partner has a patchy past.
Non-bank lenders have novel ways of assessing risk, and they may be more likely to extend credit to people with a slightly blemished credit record.
Non-bank lenders don’t have branches and they do most of their business online. Even though they don’t have a full financial services license, they still offer many of the products and services a traditional bank would.
You can go to ClearScore to access a range of banks and non-banks. Check out all theavailable and assess which ones may be appropriate for your circumstances.
Some lenders may be prepared to offer a loan to people with an impaired credit history. However, this will only be possible on condition that they are willing to pay a higher interest rate, which reflects the borrower’s higher risk profile.
But don’t jump the gun. Do the math and work out whether it may be better to wait until you’ve straightened out your finances, rather than paying very high interest rates in the short term.
If one of you really can’t get a loan in the short to medium term, you could take out the loan in one partner’s name rather than both. This will reduce the amount you will be able to qualify for, but it’s also a way to ensure you’re not overextending yourself.
It may also be prudent to set up a contract between you and your partner which will guarantee your shared ownership of this responsibility. For example, imagine the home loan is paid by one partner, while the other partner pays half of the monthly instalment to them. If the idea is to ultimately co-own the property, then this agreement needs to be laid out on paper.
Paying off a home loan is a huge commitment, which means that there’s nothing wrong with having a legal professional outline the terms of your co-ownership.
Before you apply for a loan, make sure you and your partner