Credit Score Guidelines Versus Lender Overlays

Credit Score Guidelines Versus Lender Overlays During Pandemic

Gustan Cho Associates are mortgage brokers licensed in 48 states

This ARTICLE On Credit Score Guidelines Versus Lender Overlays Pandemic Was PUBLISHED On June 5th, 2020

Understanding Credit Score Guidelines Versus Lender Overlays during the coronavirus pandemic is important.

  • HUD, VA, USDA, Fannie Mae, Freddie Mac did not change nor increase minimum credit score requirements during the pandemic
  • Once the coronavirus pandemic hit the U.S., it sent the mortgage markets into chaos
  • Included in the CARES ACT was the right for unemployed homeowners to be eligible for forbearance on federally-backed mortgages
  • FHA, VA, USDA, Conventional loans are federally-backed mortgages
  • Any homeowner who has been adversely impacted due to the COVID-19 pandemic on federally-backed mortgages are eligible to get forbearance by their mortgage servicer
  • Forbearance is not forgiveness
  • Under the federally-mandated forbearance mortgage program, homeowners can skip mortgage payments up to one year
  • The forbearance or the missed payments will not report on consumer credit reports
  • However, once the term is over, the borrower needs to pay the missed payment
  • Although mortgage servicers want the missed payments all at once, most lenders will spread the missed payments and escrow shortage over a course of time
  • All missed payments, as well as the escrow shortage, need to be paid back
  • However, there is no interest on the unpaid amount
  • Over 43 million Americans have filed unemployment claims in the past 12 weeks
  • This is a historic record

With so many people out of work, lenders are nervous and panicking on the number of homeowners who will take up on the federally-mandated forbearance program.

Lenders Fears Due To Market Uncertainty Due To Forbearance

Mortgage servicers still need to make payments to investors of mortgage bonds.

  • Servicers also need to make property tax payments and insurance for borrowers with escrow accounts
  • If there is a flood of forbearance, this can bankrupt mortgage servicers unless there is a federal bailout
  • Due to the uncertainty and fear of the mortgage markets, investors are nervous and do not want to touch any mortgages from borrowers with under 700 credit scores
  • This is the reason why lenders are increasing credit scores on all loan programs
  • Not only are they increasing credit score requirements, but lenders are also charging discount points for borrowers with under 680 credit scores
  • Most lenders have increased credit scores to 660 to 680 FICO on FHA loans
  • Most lenders have increased credit score requirements to 640-680 FICO on VA home loans
  • Many lenders have stopped doing manual underwriting on FHA and VA loans
  • Until the secondary mortgage bond markets stabilize, lenders are now requiring hiring credit score requirements
  • JP Mortgage Chase has stopped accepting mortgage loan applications on government loans
  • Chase Mortgage will only accept conventional loans for borrowers with at least 700 credit scores and 20% down payment
  • The great news is Gustan Cho Associates Mortgage Group has no lender overlays on government and conventional loans during the coronavirus pandemic
  • Gustan Cho Associates can still accept mortgage applications for VA and FHA loans on borrowers with under 620 credit scores
  • The team at Gustan Cho Associates can still do manual underwriting on FHA and VA loans

In this article, we will discuss and cover Credit Score Guidelines Versus Lender Overlays During Pandemic.

Understanding Credit Score Guidelines Versus Lender Overlays

Which means understanding the guidelines for assessing creditworthiness and the lender overlay

Most loan programs have a minimum credit score requirement.

  • For example, to qualify for a 3.5% down payment FHA loan, the borrower needs to have a 580 credit score
  • Borrowers with under 580 credit scores and down to 500 FICO can qualify for an FHA loan
  • However, under HUD Guidelines, any borrower with under 580 credit scores needs to have a 10% down payment on FHA loans
  • Under Fannie Mae and Freddie Mac Guidelines, the minimum score required to qualify for a conventional loan is 620
  • The VA does not have a minimum credit score requirement
  • Gustan Cho Associates is one of the very few national lenders with no lender overlays on government and conventional loans
  • Gustan Cho Associates will only go by agency guidelines and does not have any other lender overlays
  • As long as the borrower can meet the agency guidelines and get an approve/eligible per automated underwriting system (AUS)
  • Gustan Cho Associates will do the mortgage
  • Lenders overlays are additional mortgage guidelines set by the individual lenders that are above and beyond the minimum agency guidelines
  • For example, the VA has no minimum credit score requirements
  • Most lenders will have a minimum credit score requirement on VA loans
  • Most lenders have increased lender overlays on credit scores on VA loans to 640 to 680 FICO during the coronavirus pandemic

Most lenders have increased lender overlays on credit scores to 660 to 680 on FHA loans during the coronavirus pandemic.

Finding A Lender With No Overlays On Government And Conventional Loans During The Coronavirus Pandemic

As mentioned above, all lenders need to have their borrowers meet the minimum Agency Guidelines of FHA, VA, USDA, Fannie Mae, Freddie Mac. However, lenders can have their own lending guidelines called lender overlays. So if you get turned down by one lender with higher credit score requirements and/or other lender overlays, you may qualify with another lender. As long as you meet the minimum agency guidelines, Gustan Cho Associates can approve your loan request. Gustan Cho Associates has no lender overlays on FHA, VA, USDA, Conventional loans. If you need to qualify for a mortgage with a national mortgage company with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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