Credit Score Guidelines Versus Overlays During The Covid-19 Pandemic

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BREAKING NEWS: Credit Score Guidelines Versus Overlays During The Covid-19 Pandemic

Many borrowers are confused between Credit Score Guidelines Versus Overlays on home loans during the coronavirus pandemic.

  • HUD, VA, USDA, Fannie Mae, Freddie Mac has not changed agency mortgage guidelines on credit score requirements
  • HUD still requires a 3.5% down payment for a 3.5% down payment home purchase FHA loan
  • HUD allows borrowers with under 580 credit scores and down to a 500 FICO to qualify for FHA loans with a 10% down payment
  • The Veterans Administration still does not have a minimum credit score requirement to qualify for a VA loan
  • Fannie Mae and Freddie Mac still require a 620 credit score requirements on all conventional loans
  • However, why is it that lenders have increased minimum credit score requirements across the board?
  • Why are most lenders now requiring 660 to 680 credit scores on FHA and VA loans?
  • Why are lenders charging historic high mortgage rates and discount points for borrowers with under 700 FICO?
  • Why are loan level pricing adjustments so high when it comes to pricing hits?
  • This is why understanding Credit Score Guidelines Versus Overlays is important
  • The great news is Gustan Cho Associates has no lender overlays on credit scores on government and conventional loans during the coronavirus pandemic crisis

In this breaking news article, we will discuss and cover Credit Score Guidelines Versus Overlays During The Covid-19 Pandemic.

Understanding Agency Guidelines Versus Mortgage Lender Overlays

All mortgage lenders need to make sure borrowers meet the minimum agency guidelines of HUD, VA, USDA, Fannie Mae, Freddie Mac.

  • However, each lender has the right to set their own lending guidelines that are above and beyond of HUD, VA, USDA, Fannie Mae, Freddie Mac
  • These additional lending guidelines imposed by individual lenders are called lender overlays
  • Any lender can impose lender overlays on just about anything
  • Typical lender overlays are lender overlays on credit scores, debt to income ratios, gift funds, manual underwriting, seasoning requirements, collections, and other derogatory credit, and other credit requirements
  • Not all lenders have the same overlays
  • Some lenders may have overlays on credit scores while others may not
  • The coronavirus pandemic has created liquidity issues on the secondary mortgage bond market
  • This has created fear and uncertainty on investors who purchase mortgage-backed securities on the secondary mortgage bond market
  • Due to these liquidity issues and uncertainty in the secondary mortgage bond market, most lenders increased credit score requirements on government and conventional loans

Most lenders increased credit score requirements to 660 to 680 FICO. This holds true even though HUD, VA, USDA, Fannie Mae, Freddie Mac has not changed their agency mortgage guidelines on credit scores.

Understanding Mortgage Forbearance Under The CARES Act

Included in the CARES Act are homeowners affected from the coronavirus pandemic to be eligible for forbearance.

  • Any homeowners with a federally-backed mortgage and affected by financial hardship due to the COVID-19 pandemic are eligible for forbearance
  • Forbearance is not a loan modification
  • Forbearance allows borrowers to skip mortgage payments for a certain period of time
  • Once the forbearance period term is over, the borrower needs to pay the missed payments which include the escrow shortage
  • Lenders will spread the missed payments and escrow shortage over a period of time where the borrower can afford the repayment plan
  • Repayments of missed payments are normally interest-free
  • The forbearance does not hurt the borrower’s credit scores
  • Borrowers have a three-year waiting period to qualify for a home purchase and/or refinance mortgage after the forbearance
  • Three timely mortgage payments need to be made after forbearance to qualify for another mortgage
  • Over 43 million Americans have filed unemployment claims in the past 9 weeks
  • The flood of forbearance requests to mortgage servicers is alarming and creating fear and uncertainty in the mortgage markets
  • The U.S. economy will recover
  • However, the key question is how long will it take for the economy to recover
  • The fear of lenders is if the number of forbearance requests is large, mortgage servicers still need to make payments to investors
  • Servicers will also need to pay property taxes and insurance for borrowers with escrow accounts

If a substantial number of the 43 million Americans who filed unemployment claims apply for forbearance, this can bankrupt lenders unless there is a bailout by the federal government for mortgage servicers. This is the main reason why lenders do not want to take on risk in taking mortgage applications on risky lower credit borrowers.

Understanding Credit Score Guidelines Versus Overlays During The Covid-19 Pandemic

Many borrowers are getting conflicting answers when qualifying for a mortgage. There are countless of borrowers who were pre-approved prior to the coronavirus pandemic whose pre-approval is now null and void. This is because most lenders have tightened their credit score requirements. Most lenders now require a 660 to 680 credit score requirement as part of their lender overlays. Many strong able homebuyers with under 660 credit scores are left without a lender to obtain a mortgage. Not all lenders have the same credit score requirements. Some lenders may require a 680 credit score while others may take borrowers with a 620 credit score. If you are told you do not qualify for a mortgage due to not meeting a lender’s credit score requirements, go to a different lender. The great news is Gustan Cho Associates Mortgage Group has no lender overlays on government and conventional loans during the COVID-19 pandemic. GCA Mortgage Group still take borrowers with under 620 credit scores. We go down to 500 FICO on FHA loans. We do not have a minimum credit score requirement on VA loans as long as they can get an approve/eligible per automated underwriting system (AUS). GCA Mortgage Group still do FHA and VA manual underwriting during the coronavirus pandemic while most lenders have stopped doing so. If you need a lender with no lender overlays on government and conventional loans during the COVID-19 pandemic, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays.

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