Credit in Mortgage Process

Credit in Mortgage Process: Credit Scores vs Credit Report

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers credit in mortgage process. We will cover the difference between credit scores vs credit reports. Credit in mortgage process is probably one of the most important factors when it comes to residential home mortgages.  There are two ways mortgage lenders view credit. Borrowers need to meet minimum credit score requirements.

The minimum credit score requirement is different depending on the individual loan program. Mortgage lenders will review the overall payment history listed on the credit report.

Special emphasis will be placed on payment history for the past 12 months. Special emphasis will be placed on late payments after bankruptcy, deed-in-lieu of foreclosure, foreclosure, short sale. Government and conventional loans have their individual minimum credit score requirement. However, each lender can have its own lending guidelines which are called lender overlays. Lender overlays are higher lending guidelines by individual lenders that are above and beyond the minimum agency guidelines of HUD, VA, USDA, Fannie Mae, and Freddie Mac.

Minimum Credit Score on Government and Conventional Loans

To qualify for a 3.5% down payment home purchase FHA loan, the borrower needs a 580 credit score. Borrowers with under a 580 FICO and down to a 500 credit score need to put a 10% down payment. VA loans do not have a minimum credit score requirement or a maximum debt to income ratio cap. This holds true if the borrower can get an approve/eligible per automated underwriting system.  USDA loans normally require a 580 credit score. Fannie Mae and Freddie Mac require a 620 credit score on conventional loans. Talk to our experts for qualify for a conventional loans

The Importance of Credit in Mortgage Process

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Both credit scores and credit reports play crucial roles in the mortgage process. However, they serve different purposes and provide different types of information. In the following paragraphs, we will cover a detailed comparison to help you understand their importance and how they impact the mortgage process.

Credit Scores

A numerical representation of your creditworthiness, typically 300 to 850. It is derived from the information in your credit report. Lenders use your credit score to quickly assess your credit risk and determine the likelihood that you will repay the loan on time.

Components of Credit Scores

Both credit scores and credit reports are essential in the mortgage process. While the credit score provides a quick snapshot of your creditworthiness, the credit report offers a detailed view of your credit history. Together, they help lenders make informed decisions about your mortgage application.

  • Payment History: The most significant factor accounts for about 35% of your score. It reflects your history of making on-time payments.
  • Credit Utilization: The amount of credit you use compared to your total available credit, accounting for about 30%.
  • Length of Credit History: The length of time you’ve had credit accounts, contributing about 15%.
  • Types of Credit: The mix of credit types (e.g., credit cards, installment loans), which makes up about 10%.
  • Recent Credit Inquiries: The number of recent inquiries and new credit accounts accounted for about 10%.

Types of Credit Scores

  • FICO Scores: These are the most commonly used credit scores in lending decisions.
  • VantageScore: Another scoring model used by some lenders.

Importance  of Credit in Mortgage Process

Higher credit scores typically result in lower interest rates, saving you money over the life of the loan. Lenders have minimum credit score requirements. For example, FHA loans usually require a score of at least 580 for a 3.5% down payment.

Credit Reports

A detailed record of your credit history compiled by credit bureaus (Experian, Equifax, and TransUnion). Provides a comprehensive view of your credit behavior, including payment history, outstanding debts, and credit inquiries.

Components of Credit Reports

A loan officer can help you understand the requirements and guide you through the process based on your credit situation.nal Information: Includes your name, address, Social Security number, and employment history.

  • Credit Accounts: Details of all your credit accounts, including the type of account, credit limit, current balance, and payment history.
  • Public Records: Information on bankruptcies, foreclosures, tax liens, and civil judgments.
  • Credit Inquiries: A record of all recent inquiries by lenders, employers, or other entities.

Importance of Credit Reports in Mortgage Process

Lenders use the credit report to verify the accuracy of the credit score and to gain a deeper understanding of your credit behavior. Information from the credit report is used to calculate your debt-to-income ratio, an important factor in determining loan eligibility.  Lenders review credit reports for discrepancies or errors that could affect the lending decision.

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How Credit Scores and Reports Work Together

Lenders often start with the credit score to quickly assess your creditworthiness. The credit report provides a detailed analysis that supports the credit score, helping lenders understand the context behind the score. Lenders verify the information provided by applicants (e.g., income, debts) against the credit report to ensure accuracy and completeness.

Improving Your Chances

Regularly review your credit report for errors and dispute any inaccuracies. Annual Credit Report provides free reports from the three major bureaus. Focus on paying bills on time, reducing credit card balances, and avoiding new credit inquiries before applying for a mortgage. MyFICO offers resources for understanding and improving your FICO score.

Understanding Credit in Mortgage Process: Credit Scores vs Credit Report

Mortgage Loan Applicant’s credit scores are what decides whether they qualify for a mortgage loan. Credit Scores are also what determine rates and terms. There are pricing adjustments on mortgage interest rates depending on the borrower’s credit scores. Also, the debt to income ratio will be restricted to a 43% debt to income ratio versus a 46.9% front-end DTI and 56.9% DTI if credit scores are below 620 FICO with FHA loans.

Borrowers with credit scores 620 FICO or higher, debt-to-income ratio limit increases to 46.9%/56.9%. Having a clean credit report and maximizing credit scores is the most important factor when it comes to qualifying for a mortgage.

Most homebuyers who consult mortgage brokers are told that they need to repair their credit first before the mortgage broker will be able to help them. People need to educate themselves about credit, credit repair, credit scores, rebuilding credit, and credit reporting agencies. We highly recommend that you visit us and check out what will be the largest most informative credit repair website.  It has just launched and work is in progress but it will explain all about credit and the importance of credit repair and rebuilding your credit.

Disputing Credit in Mortgage Process

Disputing Credit During Mortgage ProcessBorrowers with bad credit can hire a credit repair company or repair credit on their own. One important note mortgage borrowers need to realize is that they cannot have credit disputes during the mortgage process. There are exemptions on credit disputes. Medical Credit Disputes are exempt.

Non-medical disputes with over $1,000 in disputes need to be retracted or downgraded to manual underwriting. Non-Medical Collections with zero balances are exempt from disputes.

Charge-offs cannot have credit disputes. For more informational articles on credit repair and the importance of credit during the mortgage process, visit us at Rebuilding your credit. Gustan Cho Associates help borrowers by providing valuable information where consumers can get free information on re-building credit to qualify for mortgages. There are blogs that will explain how to repair your own credit.

Credit in Mortgage Process: Secured Credit Cards

The best way to re-establish credit after a bankruptcy or foreclosure is by getting secured credit cards. Secured credit cards are the easiest and fastest way to increase credit scores and start re-establishing credit. The ideal amount of secured credit cards to get is 3 with at least a $500 credit limit.

Depending on how bad the credit report is, each secured credit card can increase credit scores by 20 or more points. Consumers can get secured credit cards that report to all three major credit reporting agencies.

Potential homebuyers who have the income but do not meet the credit in the mortgage process and need help in qualifying for a home loan, please contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays.

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