Credit Scores Used For A Mortgage With Multiple Borrowers

Credit Score Used For A Mortgage With Multiple Borrowers

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About The Qualifying Credit Score Used For A Mortgage With Multiple Borrowers

If you are currently shopping for a mortgage or have shopped for a mortgage in the past, you know how difficult the requirements can be to meet. There has been a recent update from Fannie Mae which will help many potential borrowers. This change offers some updates in credit score requirements specifically geared towards borrowers with lower credit scores. In this blog, we will detail the minimum credit score requirements for each agency and how to qualify for a conventional mortgage. This is even if you have lower credit scores based on the updated announcement from Fannie Mae. We will also discuss how to apply for a mortgage loan with Gustan Cho Associates.

Credit Scores Used As The Qualifying Credit Score

Credit Score On FHA Loans

This blog will specifically explain credit score requirements for the main loan programs offered by Gustan Cho Associates. As you may have learned, many lenders add credit score requirements to their mortgage programs above and beyond the minimum agency requirements. This is an example of one of the most common lender overlays in the industry. Below are the credit score requirements for each agency.  All lenders need to meet the minimum credit score requirement of HUD, VA, USDA, Fannie Mae, and/or Freddie Mac. However, lenders can have higher lending score requirements that are above the minimum agency guidelines which is called lender overlays on credit scores.

Qualifying Credit Score On FHA Loans

Credit Score Used For A Mortgage With Multiple Borrowers On FHA Loans:

It is not uncommon for a lender to tell you they require a 620 or even a 640 credit score for FHA mortgage lending. However, that is not the guideline. With Gustan Cho Associates, we can lend all the way down to 500 credit scores with FHA mortgage lending. If your credit score is below 580, you will need a 10% down payment to utilize FHA mortgage financing. Any credit score 580 or above, will only require the minimum down payment of 3.5%. If a lender tells you otherwise, you are running into a lender overlay. 

Credit Score Used On VA Mortgages

Credit Score Used For A Mortgage With Multiple Borrowers On VA Loans:

VA mortgage lending has a ton of contradicting information on the Internet. Mainly because most lenders have their own lender overlays and specific criteria that must be met for their VA mortgage programs. The good news is, we do not have any lender overlays. Technically, there is no minimum qualifying credit score for VA mortgage lending. That’s right, no credit score requirement. This is designed to help those brave individuals who served our country achieve homeownership. While there is no credit score requirement, there is a payment history requirement.

The general rule of thumb is you need to have a clean 12 months on all payments that report to the credit report, no collections in the past 12 months (excluding medical collections), and a two-year history of on-time housing payments (rent or mortgage). Even though a down payment is not required, you will also need to have money for closing costs and reserves. For more specifics on VA credit requirements, reach out to our team today! 

Credit Score Used For A Mortgage With Multiple Borrowers On Conventional Loans

Credit Score Used For A Mortgage

Credit Score Used For A Mortgage With Multiple Borrowers On Conventional Loans:

Conventional financing has always had the most strict qualifications. A change coming on September 18, 2021, will allow Fannie Mae to average credit scores when more than one borrower is present on a mortgage application. Currently, conventional mortgage loans require every borrower to have a 620 score or higher. The general rule of thumb for conventional lending is, credit scores below 680 will typically have a lower housing payment when utilizing an FHA mortgage loan. However, if you need to borrow more than the FHA county limit, a conventional loan may be your best option.

As of today, each borrower must have a middle credit score higher than 620 to qualify for a conventional loan. For all applications after September 18, 2021, the new rules apply. What are the new rules? For loans with more than one borrower and one or more of the borrower’s credit score is less than 620, the automated underwriting system will utilize the lower middle score of each borrower BUT then go on to average those two scores in an effort to increase average above a minimum score of 620. Please keep in mind averaging credit scores cannot result in a higher representative credit score. The average middle score will either be the same as the represented credit score of one or more of the borrowers or the same or higher than the representation of credit score with multiple borrowers.

Case Scenario On The Average Credit Score Used For A Mortgage

Let’s go over an example. We do understand this rule change can be confusing.

  • Borrower 1 – 617, 642, 651
  • Borrower 2 – 540, 602, 611

AVERAGE MIDDLE SCORE = 622

In this example, the average score allows for conventional financing even though one borrower has a middle score of less than 620. Based on the new guideline, the average of middle scores cannot be higher than the middle score used for any borrower (642 in this example). 

The above credit score requirements are not the only qualification for mortgage lending. Just because you have a qualifying credit score, does not mean you will automatically qualify for a mortgage. Each loan program has specific qualifications based on payment history, down payment, reserve requirements, debt to income requirements, and further underwriting criteria.

If you feel you have a qualifying credit score or would like information surrounding a mortgage application, please contact Mike Gracz at gcho@gustancho.com. Or call and/or text Mike at (800) 900-8569. Mike will go over your scenario in a one-on-one setting. Our team at Gustan Cho Associates has seen every credit profile under the sun and is available to help. Even if you do not qualify today, we will come up with a customized financial plan to have you qualify. After your initial conversation, Mike Gracz will pay you with a licensed loan officer in the required state. Once you are paired up with a licensed loan officer, you will complete a formal mortgage application. Once that application is complete, your loan officer will be able to calculate your income and pull your credit.

Qualifying For A Mortgage With A Lender With No Overlays On Government And Conventional Loans

Based on your credit profile and debt to income ratio, your loan officer will complete the proper pre-qualification steps. If there are credit challenges that need to be addressed, your loan officer will come up with a financial plan to have you qualify as soon as possible. We work with many families for over a year before they qualify for the home they are looking for. We are mortgage experts and deal with many credit challenges. Even if you have been turned down by a lender in the past, we encourage you to call Gustan Cho Associates today. Our team looks forward to helping you understand credit score requirements and mortgage lending. Please reach out to Mike Gracz on (800) 900-8569 or send an email to gcho@gustancho.com for more information.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *