Credit Scores Increased During Underwriting Process And Benefits

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This BLOG On Credit Scores Increased During Underwriting Process And Benefits Was UPDATED And PUBLISHED On April 7th, 2020

Why credit scores increased during the underwriting process and benefits

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

Credit Scores is what determines whether borrowers qualify for a particular mortgage loan program.

  • For example, HUD, the parent of FHA, requires a minimum credit score of 580 FICO credit scores for borrowers to qualify for FHA Loans with 3.5% down payment on a home purchase
  • If Borrower has credit scores of under 580 FICO credit scores, then HUD will require buyers to put down a 10% down payment
  • Fannie Mae and Freddie Mac require borrowers to have at least a 620 credit score to qualify for Conventional Loans
  • Most FHA 203k Lenders will require that FHA 203k mortgage borrowers have 640 credit scores to qualify for FHA 203k Loans
  • VA Loan does not have any credit score nor debt to income ratio requirements
  • However, normally a 580 FICO credit score is recommended for VA Borrowers to get an approve/eligible per AUS
  • USDA Loans will require 640 credit scores

In this article, we will discuss and cover Credit Scores Increased During Underwriting Process And Benefits.h

Credit Scores Mortgage Guidelines For Loan Programs

Credit Scores will also have an impact on debt to income ratio requirements.

  • For example, HUD will limit debt to income ratio requirements to 43% DTI for borrowers with credit scores of under 620 to get an automated underwriting system
  • HUD allows debt to income ratios of up to 56.9% DTI for Borrowers with credit scores of 620 Credit Scores or higher to get an AUS Approval

Credit Scores will also play a major factor in Conventional mortgage interest rates.

  • With Conventional Loans, the higher the Borrower’s credit scores are, the lower their mortgage interest rates are because Conventional Loans are not insured and guaranteed by the government like government loans
  • FHA Loans, VA Loans, and USDA Loans are insured by the government and is often referred to as government loans

Many borrowers often ask what happens if credit scores increased during underwriting process.

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

There are many times when credit scores increased during underwriting process for many borrowers.

  • If your credit scores increased during underwriting process, the original credit scores used with the submission of the mortgage loan application can be replaced with the higher credit scores
  • If the credit scores dropped during mortgage underwriting process, borrowers are safe for 120 days
  • Many lenders have overlays where the initial credit scores can only be used throughout the whole mortgage process even though Credit Scores Increased During Underwriting Process
  • Many times borrowers who have credit scores of under 620 FICO get a non-occupant co-borrower
  • This is because the debt to income ratio maximum limits is 43% DTI to get an approve/eligible per AUS
  • But if credit scores increased during underwriting process, the borrower may no longer need the non-occupant co-borrower
  • This holds true because their credit scores have increased over 620

With borrowers with credit scores of 620 or higher, the maximum debt to income ratio caps at 46.9% front end and 56.9% DTI back end for AUS Approval.

Hurdles With The Mortgage Process With Lenders With Overlays

What could be the obstacles to the mortgage process with lenders with overlays

With situations like these, the following occurs with lenders with overlays:

    • then the original loan submission needs to be completely canceled
    • a new mortgage loan application needs to be signed by the borrower
    • new mortgage disclosures need to be disclosed without the non-occupant co-borrower
    • Case scenarios above are with lenders with no overlays where they are adamant borrowers need to use original credit scores

Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays. We allow to use new higher credit scores during mortgage process.

What If Credit Scores Increase During Underwriting Process On Conventional Loans

Mortgage Rates on Conventional Loans are greatly impacted by credit scores and loan to value.

  • To get the best mortgage interest rates on conventional loans, Borrowers will need a 740 FICO credit scores
  • Any credit scores below 740, there will be a pricing adjustment to borrowers
  • Conventional Loans are not insured like FHA Loans
  • HUD insures FHA loans originated and funded by Lenders
  • With Conventional Loans, any borrower with less than 20% down payment will require private mortgage insurance
  • Private mortgage insurance premium will also depend on 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 lenders and private mortgage insurance companies.

Mortgage Process When Credit Scores Increased

If scores increased during underwriting process significantly, then the best way to use new credit scores due to lender overlays is the following way:

  • is to cancel the original loan
  • have mortgage loan officer to resubmit a new mortgage loan application
  • have loan officer resend out new mortgage disclosures with new credit scores
  • This strategy may cause delays in closing home loan

However, the savings on getting a lower mortgage interest rate may be worth the delay on mortgage loan closing.

What If Credit Scores Decreased During Underwriting Process

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 borrowers get extremely concerned:

  • This holds true 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 loans, the minimum credit score required is 580 credit score

If 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.

How Long Is Original Credit Scores Valid During Mortgage Process

If borrower’s credit scores drops during the mortgage underwriting process, that should not matter:

  • This holds true 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
  • If that is the case, then lender needs to pull new credit report
  • The new credit scores from the new credit report will be used

This often may become an issue with borrowers who purchase a new construction home. There are construction delays and the closing of their new construction home can take longer than 120 days.

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