Are all credit scores calculated the same?
All mortgage lenders will qualify an individual for a mortgage loan based on income, debts, assets, and most importantly, credit scores. Credit scores is what decides whether a mortgage loan borrower qualifies for a mortgage loan. All mortgage lenders have credit score cutoffs. They have a minimum credit score requirement.
For example, the majority of the banks will not accept a mortgage loan applicant who has a credit score below 640 FICO. Most folks who have credit scores under 640 FICO would need to seek the help of a mortgage broker who specializes in bad credit mortgage loans. Every mortgage banker has a minimum credit score requirement.
My condotel mortgage wholesale lender has a minimum credit score requirement of 680. I have some wholesale bad credit mortgage lenders that will accept a credit score of 530 FICO. For wholesale lenders that will qualify and accept an individual with credit scores between 530 FICO and 580 FICO, the mortgage lender requires the mortgage loan borrower to put at least 10% down.
To qualify for a 3.5% down payment mortgage loan, a mortgage loan borrower needs to have a minimum credit score of 580 FICO or great but will have strict debt to income restrictions. For more lenient debt to income ratio restrictions and better mortgage rates, an individual needs to have credit scores over 620 FICO.
What should I do if my credit scores are low?
If your credit scores are below 640 FICO, the chances are slim to none that you will get a bank to finance you. You should consult the services of a mortgage broker or mortgage banker. Your mortgage broker will pull your credit and review your mortgage application. He or she will then give you various options on how he can approve you for a loan. If your credit scores are 615 FICO and he feels he can boost your credit scores to a 620 FICO or higher in a month to qualify you for a better interest rate, then it might be wise to wait to purchase a home until he can increase your credit scores. 620 FICO is a key credit score cutoff number. For example, you can get a mortgage interest rate of 3.25% if your credit score is 620 or higher whereas your mortgage rate will be 4.5% if your credit scores is below 620 FICO. Most mortgage brokers know how to boost credit scores. It might be paying down credit card balances or getting one or two secured credit cards.
For those of you who have credit scores at a borderline level like the 615 FICO score we used with the above example and are in a rush to purchase and close on their home, they might just have to settle with the higher mortgage rates and less favorable mortgage terms.