Wanting to spend the rest of your life with someone is a romantic moment that is often surrounded by love and a lot of emotions. But the phrase “Do you want to marry me? “Is rarely followed by” What is your credit rating? Though it is this day, perhaps it should be.
This person could be the man or woman of your life, but you choose not only the person but also their credit history. This could have an effect on the future of yours, especially if you plan to buy a house together.
As it is probably in your plans, it is in your interest to ask questions about your partner’s financial history before you start shopping for a home.
Even if your own credit report looks like A + grade report card, your spouse’s report data could have a significant effect on your chances of getting a mortgage together. You could receive offers with very high-interest rates or even be denied completely.
Here’s how your spouse’s credit could affect the future of your joint credit.
Ratings and pre-approvals
The good news is that when you get married, both individuals keep their own credit rating. So if one borrows money without their spouse, only their credit rating will be evaluated. However, it is when both parties want to borrow jointly (such as to buy a house, for example) that some problems may be required. Here’s what banks and lenders are checking:
- If you both have stable and reliable salaries.
- That both will be able to take the financial and legal responsibility of the mortgage (and that’s why both credit histories are important).
- That you both have a credit rating that is quite high (this varies depending on the lender and the type of loan and the amount you need, but generally speaking, a rating of 700 or less will cause problems).
- That your credit ratings are similar (as the two credit ratings will be taken into consideration, the high score of one will not compensate for the lower rating of the other)
If you think your partner’s credit rating is low, it’s best to discuss it together and take the necessary steps to improve it before shopping for a new home together.
Bankruptcies and financial recoveries
Even if you are certain that both credit ratings are high enough to be pre-approved for a mortgage, other factors exist that could affect your likelihood of being approved for a loan. That’s why it’s so important to have the discussion beforehand. If your spouse went bankrupt or was involved in a financial recovery, it could still be considered to be in a “stabilization period”. After a bankruptcy or resumption of finance, a borrower may have to wait months or years before he can apply for a loan or credit. The conditions vary depending on the lender, but this could still prevent you from getting a mortgage together. Even if your spouse has improved their credit rating, you will have to wait until the “stabilization period” ends to apply for a loan.
The community of property
It might seem like a good idea to try to get around your spouse’s bad credit by removing his name from your mortgage application. Although it might seem logical, it could work against you because the regulations in Quebec vary according to the different types of the union: civil, religious marriage, common life, etc. Check what represents you in your relationship and how this might affect you. Things can also vary depending on the lender and the type of loan. Better to do your research and maybe ask a counselor.
If you recently married or are planning to do so soon, having a conversation about your finances should be a priority. It’s important, to be honest with your spouse and discuss your financial history. When you have targeted potential problems, it should be rather simple to fix them. Take the time to work together to be on the same wavelength and you can buy this dream house faster than you think.