Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Dec 14, 2011

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If a borrower has good credit but their spouse has bad credit, they can still obtain a low interest rate home loan by applying for the mortgage without their spouse.

The downside to applying for a mortgage loan alone is that only a single income is considered. This results in the borrower qualifying for a smaller amount. If the spouse with bad credit makes the most the money, the couple should consider whether qualifying for a larger loan is better than a low credit rating. Depending on the cost of the prospective property, if the spouse with bad credit makes the most amount of money, the couple will have no choice but to apply jointly and take the high interest rate.

While not very popular anymore, if a borrower with a low-credit spouse can find a lender who will offer a no-doc home loan, then they may be able to sidestep their spouse’s bad credit while still getting credit for their income. No-doc home loans, also called liar loans and stated-income loans, are those that require no documentation proving a borrower’s income. Rather, they allow a borrower to simple say what their income is, and arrange a loan as if that were truth.

In this case, a borrower can include both their income and their spouse’s income in their statement, while leaving their spouse’s name off the loan itself. This would result in the best interest rate for the most amount of money.

However, as stated before, no-doc home loans are a rarity, as they played a large role in the housing market collapse.

Finally, if the borrower or their spouse has parents willing to co-sign on a mortgage loan, that may prove to be a viable tool in scoring a low interest rate.

If worse comes to worst, though, a borrower should just take a step back and work with their spouse on improving their credit score. Then once their score has sufficiently risen, check the housing market out again. A year or two of intentional, credit-improving work can wind up being the difference between thousands of dollars.