Cases When Credit Scores Increased During Underwriting Process

Will It Benefit Me If Credit Scores Increased During Underwriting Process?

Credit Scores is what determines whether a mortgage borrower qualifies for a particular mortgage loan program. For example, FHA requires a minimum credit score of 580 FICO credit scores for a FHA mortgage borrower to qualify for a FHA Loan with 3.5% down payment on a home purchase. If a FHA Borrower has credit scores of under 580 FICO credit scores, then FHA will require that the FHA mortgage borrower put down a 10% down payment. Fannie Mae and Freddie Mac requires mortgage borrowers to have at least a 620 FICO credit score to qualify for a Conventional Loan. Most FHA 203k Mortgage Lenders will require that FHA 203k mortgage borrowers have 640 FICO credit scores to qualify for a FHA 203k Loan. VA Loan programs normally require a 580 FICO credit score for VA Borrowers and USDA Loans will require 640 FICO credit scores for USDA mortgage borrowers.

Credit Scores will also have an impact on debt to income ratio requirements. For example, FHA will limit debt to income ratio requirements to 43% DTI for borrowers with credit scores of under 620 FICO. FHA allows debt to income ratios of up to 56.9% DTI for FHA Borrowers with credit scores of 620 FICO Credit Scores or higher.

Credit Scores will also play a major factor for Conventional Loan borrowers and mortgage interest rates. With Conventional Loans, the higher the Conventional Mortgage Borrower’s credit scores are, the lower their mortgage interest rates are because Conventional Loans are not insured and guaranteed by the government like FHA Loans, VA Loans, and USDA Loans are. Many mortgage borrowers often ask what happens if credit scores increased during underwriting process.

What If Credit Scores Increased During Underwriting Process? Can I Use New Credit Scores?

There are many times when credit scores increased during underwriting process for many mortgage borrowers. Unfortunately, if you credit scores increased during underwriting process, the original credit scores used with the submission of your mortgage loan application can only be used throughout the whole mortgage process. Many times FHA borrowers who have credit scores of under 620 FICO credit scores get a non-occupant co-borrower because the debt to income ratio maximum limits is 43% DTI but during the mortgage process the credit scores increased during underwriting process and may no longer need the non-occupant co-borrower because their credit scores has increased over 620 FICO credit scores. With borrowers with credit scores of 620 FICO or higher, the maximum debt to income ratio caps at 56.9% DTI. With situations like these, then the original loan submission needs to be completely canceled and a new mortgage loan application needs to be signed by the borrower and new mortgage disclosures needs to be disclosed without the non-occupant co-borrower.

What If Credit Scores Increase During Underwriting Process: Conventional Loans

Mortgage Rates on Conventional Loans are greatly impacted by credit scores and loan to value. To get the best conventional mortgage interest rates, a Conventional Mortgage Borrower will need a 740 FICO credit scores. Any credit scores below 740 FICO Credit Scores, there will be a pricing adjustment to the mortgage borrower. Conventional Loans are not insured like FHA Loans. FHA insures FHA mortgage loans originated and funded by FHA Approved Mortgage Lenders. With Conventional Loans, any conventional mortgage borrower with less than 20% down payment will require private mortgage insurance and the private mortgage insurance premium will also depend on the Conventional mortgage borrower’s credit scores and loan to value. The higher the borrower’s credit scores, the lower the private mortgage insurance premium will be. Higher credit score borrowers are considered less risk for both Conventional mortgage lenders and private mortgage insurance companies. If your credit scores increased during underwriting process significantly, then the best way to use your new credit scores is to cancel the original conventional mortgage loan and have your mortgage loan officer to resubmit a new mortgage loan application and send you out new mortgage disclosures with your new credit scores.  This strategy may cause you delays in closing on your home loan, however, the savings on getting a lower mortgage interest rate may be worth the delay on your mortgage loan closing.

What If Credit Scores Decreased During Underwriting Process

There are instances where a borrower’s credit scores have decreased during the mortgage process and many mortgage loan borrowers get extremely concerned, especially borrowers who barely met the minimum lending guidelines on credit scores. The great news is that mortgage lenders will only go by the credit scores that the mortgage loan application was processed and submitted and that credit score will be valid for a period of 120 days. To qualify for a 3.5% down payment FHA insured home purchase mortgage loan, the minimum credit score required by FHA is a 580 FICO credit score. If a FHA borrower has a 580 credit score and their mortgage loan application gets an approve/eligible per DU FINDINGS , the borrower should have no problem in closing on their home loan.  If the borrower’s credit scores drops during the mortgage underwriting process, that should not matter because the credit score of 580 FICO will be used throughout the whole mortgage approval process. The issue will come about if the mortgage process takes longer than 120 days and if that is the case, then the mortgage lender needs to pull new credit report and the new credit scores from the new credit report will be used. This often may become an issue with home loan borrowers who purchase a new construction home and there are construction delays and the closing of their new construction home can take longer than 120 days.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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