5-Step Guide for Newlywed House-Hunter's

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The newlywed house-hunter's 5-step guide to getting ahead

Love is blind but mortgage companies surely are not. This fact of life is one many newlyweds encounter when hunting for their first home and discover their cumulative credit is far from lovable.
So what happens to their "American Dream" when one spouse's credit is terrific but the other's isn't?

"Typically when a couple applies for a mortgage, the lender reviews the credit histories of both individuals," says Rod Griffin, manager of consumer communications at credit reporting agency Experian. "That means the negative credit history of one could have an effect on the transaction."
Nonetheless, many lenders are still willing to show applying couples their love.

Bud Carter, senior director of residential finance at the Mortgage Bankers Association, says lenders tend to look at each situation pragmatically. "If the person with bad credit is not needed to qualify for a mortgage—in other words, one partner has sufficient income to obtain a mortgage—then the credit report of the individual with less-than-stellar credit history might not be reviewed."

Long-term solution
Your best move is to plan ahead. Just as finalizing the plans for a wedding can take up to a year, so can efforts to improve your credit history.
"A couple should spend time improving their credit history, paying off debts and building a good credit history," says Griffen. "The longer the time has passed since the negative activity, the better off you'll be when applying for a loan. You need to show a lender you've changed your habits and can now handle your financial affairs more carefully."
Carter agrees: "That's what it comes down to—paying bills on time, particularly rent and car payments. Since most lenders look for a year's worth of acceptable credit, the sooner the person can act, the better."

Five ways to get ahead
These five tips can place you and your companion in a better position to qualify for a mortgage:

1. Act now. Obtain a copy of your credit reports several weeks or even months before applying for a loan. This lets you learn any potential problems and enter the application process with the same information as the lender. 
2. Change your habits. If you have a spotty credit history, start paying your bills on time. Demonstrate to a lender you can handle making monthly mortgage payments. 
3. Establish a credit history. If you lack one, obtaining a cosigner for a loan is one way to establish a credit record. A secured credit card can also be helpful. Be sure the credit card company reports your payment history to credit reporting agencies. 
4. Consider applying as a sole applicant. In other words, use only the credit history of the partner with good credit, if possible. 
5. Look at alternatives. Someone with impaired credit could qualify for a non-conventional mortgage, such as a sub-prime loan, which is more expensive because there's more risk to the lender. If mortgage rates are 7%, a couple with bad credit could have to pay 9% for a sub-prime loan.

Above all, don't wait until it's too late. Buying a home is a little like getting married: the process is arduous but the result is worth it.