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What's worse, low income or low credit score?

By Gina Pogol
Mortgage Credit Problems Columnist


Dear Gina, I have excellent credit but a low income; my fiance has excellent income but lousy credit. Should we apply for a mortgage together? - Wendy, Gainesville, Fla.

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Dear Wendy,

I hate it when people say, "It depends." But in this case, it really does depend on how lousy his credit is and how low your income is.

Before the mortgage crisis, someone with great credit like yours could have gotten a no-income-verification mortgage and used your fiance's income to help make the payments without having to put him on the loan. Someone with plenty of income but bad credit problems, like your fiancé, could simply get a bad credit or subprime mortgage and pay a higher interest rate.

Unfortunately, at least in the immediate future, those options are off the table.

Explore the limits of your income and your fiance's bad credit

Try a mortgage prequalification calculator to see how much you can afford with your income. Your total house payment shouldn't come to much more than a third of your income, and all of your payments (credit cards, auto financing, student loans) shouldn't come to more than 40 percent, although in some cases you can go as high as 50 percent.

Then, see if your fiance can get a bad credit mortgage. Smaller lenders and FHA lenders still offer home loans for people with bad credit, depending on the severity of the mortgage credit problems.

Assuming that your income is insufficient and that his credit is in fact too "lousy" to get a mortgage, you'll have to determine what must be done to increase his credit score, up your income, or both.

Helping your fiance go from bad credit to better credit

I advise against co-signing any loans with your fiance. If he misses a payment, it will show up on your credit history and drag your scores down. He needs to prove himself before you can afford to co-mingle your finances.

However, you could add your fiance as an authorized user on your credit accounts, and then your good credit would show up on his credit report, helping increase his score. If you do this, do it for the credit report only: I strongly advise against letting your fiance actually use your credit accounts -- he needn't actually have a credit card or even know the account number.

Your fiance needs to get a history of on-time payments. You can help him by setting up a system to make paying bills easier, whether automatic debits from the bank account, stamped and addressed envelopes in a file folder or electronic banking. Once his credit score reaches 580 or higher, you can start applying with FHA lenders.

Increase income by buying a rental property

The other route you might take is increasing your income. Taking a second job now won't help immediately, because most lenders want you to have that job for one or two years before they will count the earnings when underwriting your mortgage. But you can increase your income for qualifying purposes by choosing a multi-unit property with the plan to live in one unit and rent out the others. Lenders will generally credit you with 75 percent of the property's projected rental income when qualifying you for a mortgage.

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