In divorce situations, it is common, for the spouse who keeps the home to refinance to remove the other spouse from the loan. Equally as common, first-time buyers who don’t have enough income to qualify may ask a parent to co-sign and must add their name to the mortgage.
Another situation that requires removing or adding a person to a loan could be to qualify for a better interest rate. The difference in a minimally acceptable credit score and something that might be considered “good” could be as much as a 0.5% higher rate for the term of the mortgage.
Consider that a couple is buying a home on a conventional loan, and they have individual credit scores of 760 and 670. The underwriters will price the loan based on the lower of the two scores. A half percent interest on a $400,000 30-year mortgage could have close to $110 a month difference.
A possible solution to this dilemma could be available, assuming the borrower with the higher credit score had enough income to qualify for the mortgage separately. If so, that person would be eligible for the lower rate.
The property could still be titled in both names and if so, that person would be liable for the mortgage should the named borrower default on the loan.
Another scenario that may arise is that a couple has enough income to qualify for a mortgage but because one of the parties has a lower credit score, it will be priced higher. Having a parent or relative added to the mortgage as a non-occupying borrower to help with the credit score. Interest rates are determined on the lowest middle of three scores for the borrowers applying for the loan.
Assuming the parent’s score was higher than the lower score of the couple, it could improve the rate applied to the mortgage loan.
The value of a trusted mortgage professional is very important. They can offer alternatives to situations that could be worth tens of thousands of dollars over the life of the mortgage and in some cases, can make the difference in being approved at all.
Your real estate professional would be more than willing to make a recommendation and can support the need to assemble a strong team to help with your transaction.