The Federal Reserve has released new research, which shows that some couples who apply for joint mortgages are borrowing at higher interest rates. This often occurs when the difference between the co-borrower’s FICO credit scores is fairly large. Lenders are generally required to use the lower of the two credit scores, which can greatly affect the interest rate. This rule is followed by most lenders, mortgage insurance companies, and investors such as Freddie Mac and Fannie Mae.
Many first-time homebuyers do not know about this rule, so they apply together. Research shows that many first-time joint borrowers have paid more than they needed to on mortgages made over the past ten years. This conclusion was made after examining a detailed set of data pulled from almost 604,000 mortgages granted between the years of 2003 and 2015. Almost ten percent of borrowers who applied jointly would have received a lower interest rate had the applicant with the better credit score applied singly. Of course, that applicant would have had to have an income high enough to qualify for the loan on their own.
The study showed in cases where one of the joint borrowers had a FICO score lower than 740, more than a fourth of the borrowers could have received a lower interest rate if only the applicant with the higher score had applied. Experts urge couples to discuss this option with lenders when they apply for a mortgage.
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