A Question About Mortgages and Credit Scores

Hi, folks. Appreciate any help you can give here. Let me preface by saying I know I need to speak to a professional about this, and will, but for now I’m trying to muddle through and learn on my own. Here’s the situation:

My wife (girlfriend/lesbian lover/pick your pejorative) and I are planning to buy a house next year.

I’ll have the 15k down payment for a house in the 150k range.

My credit score is golden in the 730 range.

Here’s the sticky part:

I only make 1k a month. My wife makes 2200 a month.

Her credit score is awful (low 600s) due to a past Chapter 7. She’s working on raising that and cleaning up her credit history, but it won’t be in time for us to buy the house.

You see the problem – my credit score is great but my income doesn’t qualify me for the loan size we’ll need. Her income does but her credit score doesn’t.

My main questions are these: Is it possible/legal for my wife to give me her income (gift it, i.e. “Here’s my paycheck every month, it’s a gift!”) to raise MY income so I qualify for a larger loan with a better interest rate? If it is, would I need to report that money on my taxes?

Thanks much in advance.

Anyone can give anyone money gifts every year under the federal limit (I think it is $12,000 a year right now) without tax implications on the gift. That could get the money to you.

However, there are at least two additional problems. If she is on the mortgagte as well, the bank will likely want to list her as the primary person on the mortgage and her credit score could cause a problem. Her credit score is going to matter to some degree no matter what if she is on the mortgage at all.

Even if you got enough for the down payment, your income amy not be enough to cover the bank’s mortgage calculation so that would put you back to the problem of needing her on the mortagage and her credit causing a problem.

Let’s say she’s not going to be on the mortgage, so that wouldn’t be an issue. You said my income still wouldn’t be enough to qualify – even if she gives me her income? Can I not count that as part of my monthly income?

Thanks, Shag, for a quick and helpful answer.

No you wouldn’t be able to count it as income. They would require proof of where the income is coming from, usually in the form of a W2. The W-2 would show her name instead of yours and they would only process the application if it was in both of your names.

(IANA mortgage broker, so this is info just from my incidental knowledge of the industry)

Ah, okay, makes sense. That then, makes me wonder if it’s legal/possible for her to “hire” me and pay me her monies, hence making it legit income. But it seems like that would just lead to us being double-taxed somehow.

Geesh, this shit is confusing. Thanks, Antinor, for the quick answer.

My honest advice would be to forego buying the house at this time. Give her time to get her credit cleaned up and look at buying then. Waiting sucks, but based on the info you’ve given here that sounds like the best option.

How long ago was her BK? One of those will make getting a loan tough. Not impossible, but tough, and you’ll probably be looking at an 8% rate at best, and probably closer to 10%

Even without the BK, the industry re-jiggered its internal concepts about three weeks ago, and a FICO score of 640 or less is now considered as sub-prime.

As Antinor01 said, they’re going to be looking for at least the past two years’ W2 forms and your tax returns, as well as some number of recent paychecks, so there’s really no way to fudge your income. The recent tumult in the subprime sector has lenders going over things with an even finer-tooth comb than they were previously.

Best advice I can offer is to either get yourself pulling in more steady and documentable money to qualify for a loan on your own and leave her out of the mortgage entirely, or to wait for her BK to fall off. Or both.

Her C7 was about three years ago, gotpasswords.

I hear what both you and Antinor are saying about waiting, and it’s very possible we’ll do that. If we do decide to go forward together with both names on the mortgage, would the lender combine my score with hers and come up with some sort of median score? Or would they see her C7 on the record and deny us regardless of my sterling history? Or take the higher (or lower) of the two? Or what?

Thanks for the help.

Based on my refinancing a few months ago, they treated me as some type of primary on the new mortgage just based on a small difference in income. They pulled my credit score first and they pulled hers later but it seemed like they were most interested in me (the one with the higher income). I am fairly certain that they don’t average credit scores because credit score models don’t work that way.

Here’s a tack that no one so far has mentioned. Find a lender that doesn’t insist on tax returns for income verification. It’s called “stated income.” Basically, they take your word for what you say you make.

They aren’t total fools, but realize that some people’s income might not be all reported on tax forms. They will want to verify what you make by observing your life style and checking your bank statements. If you and your wife share accounts, or can pool them for this purpose, your combined income would verify what you claim to make, and that’s enough for them.

The interest you pay might or might not be higher than obtainable thru other forms of loan apps. And in the worst case, at the expense of higher interest for at least a while, you might have to go to hard money lenders.

If you set up an automatic payment plan and don’t accumulate anything bad for a few years, you should be able to refinance and get better rates and terms.

Find a mortgage broker that knows how to handle this kind of app. It works. I just had such a loan arranged for a client (I’m not a mortgage broker, but a Realtor).

You should explore the HUD web site, they have programs to help, especially first time homebuyers.

Your credit scores belong to each of you as individuals, as does your creditworthyness. What you are proposing, as other have pointed out, is just not going to happen so you can obtain a mortgage.

You best bet, as others have already stated, is to increase your own income in a stable employment, wait out your wife’s credit rating (meaning work to get it better and not worse), and save as much cash as you can to increase the down payment. My WAG is the housing downturn will last for quite a while (at least for another 18 months to two years).

You can get an FHA loan right now and probably not have to pay any PMI with 15k down on a 150k house. Am I too tired and missed something somewhere? How come no one else has offered this? You would essentially be a co-signer on the loan. I’m probably missing something that someone else said…being as tired as I am.

Heh, I wasn’t proposing that they’d do that “just for me”, but asking if that’s how it works when two people go for a mortgage together. I see now that it’s not.

Musicat, that’s EXACTLY the type of thing I was looking for. Thank you so much, that bit of information is invaluable.

A.R. Cane and Phlosphr, I’ve been looking into those two options, as well.

Thank you all very much, you’ve been extremely helpful!

Another thought, you might want to consider buying a multi-family unit. It’s not to be taken lightly, as being a landlady is a challenge, but it can leverage you into a lucrative investment, if your up to investing the time and trouble along w/ your money.

My fiancee and I are in the same situation you and yours are. I make more, and have a similar credit score to your wife/lesbian lover/gf (due to laziness/mistakes on my part in the past, not Chapter 7), and my fiancee makes considerably less but has pristene credit scores.

We just got approved for $150,000 at 6.875%.

Just apply together and see what happens. Plus, you guys actually have a larger downpayment than we do.

I suggest anyone wanting to learn more about credit check out CreditBoards.

There is a wealth of information there. The boards are very active and moderated.

You all will have a house faster than you think.

Thanks for the suggestion fifty-six, I’ll wander over there and poke around.

And super congrats, Happy. That gives me a lot of hope!

Really appreciate the time all of you folks took to answer me.

There is another way to show income without a W2 (a mortgage broker friend of mine was discussing this with me, when we discussed my online poker income)…by making regular, similar deposits into your checking account, and keeping the receipts, you can show it as a type of income…I don’t have all the particulars, I had mentioned how one month I might make a few thousand, and the next 200, and he said leave it online, and withdraw a set amount, perhaps $1000, every month, and then you can claim it as income from other sources. Sticking 5K in one month, and 100 the next month would look fishy, so the deposits need to be at regular intervals, and at somewhat consistent amounts.