What Credit Scores Used By Lenders To Qualify For Mortgage

This BLOG On What Credit Scores Used By Lenders To Qualify For Mortgage Was UPDATED On July 15, 2017

Takes take a mortgage case scenario on What Credit Scores Used By Lenders To Qualify For Mortgage:

  • Say Mr. and Mrs. Jones are married and they are first time home buyers.
  • They need to qualify for a mortgage loan. 
  • They both have jobs and want to purchase a modest home. 
  • They are aware that their mortgage lender told them that they would need a minimum 640 FICO score to qualify for a mortgage loan. 
  • The 640 is not HUD Guidelines on Credit Score Requirements.
  • Minimum credit score requirements to qualify for 3.5% down payment FHA Loans is 580.
  • This lender is asking for higher credit score requirements because they have lender overlays on credit scores.
  • What Credit Scores Used By Lenders To Qualify For Mortgage and do they go by.
  • Which credit reporting agency does the mortgage lender choose. 

Credit Reporting Agencies

There are three credit reporting agencies:

  1. Transunion
  2. Experian
  3. Equifax

Which Scores Are Used As Qualifying Credit Scores

Mortgage Lenders pull tri-merger credit reports on all mortgage loan applicants which is a credit pull from each of the three credit bureaus.

  • The credit score used as the qualifying credit score is the middle credit scores.
  • If there are more than one borrower such as multiple co-borrowers, then the middle credit score on the borrower with the lowest middle credit score is used.

Multiple Borrowers

On the above example, Mr. Jones will have 3 credit scores and Mrs. Jones will have 3 credit scores for a total of six credit scores.

So, which credit scores will the mortgage lender go by the following:

  • Calculating which credit score the mortgage lender will go by is a two step simple analysis.  
  • I will explain it on the example below:

Let’s take this scenario for Mr. Jones:

  • Mr. Jones’s Transunion credit score         720 FICO
  • Mr. Jones’s Experian credit score               630 FICO
  • Mr. Jones’s Equifax credit score                  540 FICO

Now, what is Mr. Jones’s middle credit score?

  • Mr. Jones’s middle credit score is 630 FICO because the 630 credit score is between the 720 and 540.

For Mrs. Jones:

  • Mrs. Jones’s Transunion credit score           650 FICO
  • Mrs. Jones’s Experian credit score                640 FICO
  • Mrs. Jones’s Equifax credit score                   630 FICO

What is Mrs. Jones’s middle credit score?

  • Mrs. Jones’s middle credit score is 640 FICO because the 640 FICO falls between the high score of 650 and low score of 630.

Qualifying Credit Scores Used By Lenders

Mortgage lenders will go by the lower of the two borrower’s middle credit scores.

  • On this case, Mr. Jones’s middle credit score is 630 FICO and Mrs. Jones’s credit score is 640 FICO. 
  • The minimum credit score requirement for this mortgage lender is 640 FICO. 
  • Mrs. Jones qualifies because her middle credit score is 640 but Mr. Jones does not qualify because his credit score is 630 FICO.
  • On this case scenario, both of these mortgage loan applicants do not qualify for a mortgage loan with this particular mortgage lender because the credit score this mortgage lender will use is Mr. Jones’s 630 credit score since his is the lower of the two middle credit scores and the mortgage lender’s minimum credit score requirement is 640 FICO.

Meeting The Minimum Credit Scores

On the example above, there are several solutions.

  • First solution can be where Mr. Jones is not on the loan and have just Mrs. Jones on the loan. 
  • Mr. Jones can be on the title after closing the loan. 
  • One problem this causes is that if Mr. Jones is not on the loan, his income cannot be calculated in calculating the debt to income ratio. 
  • If Mr. Jones’s income is not necessary in meeting the minimum debt to income ratio, they are in business. 
  • If they need Mr. Jones’s income to qualify for the loan, then we need to go to option # 2.

Mortgage Lenders With No Overlays

The second option is to get a different mortgage lender with lower credit score limit guidelines.

  • Consult with lender with no overlays.
  • There are many lenders with no overlays on credit scores.
  • Another solution is to try to increase Mr. Jones’s credit score. 
  • Boosting his credit scores may be simple such as paying down credit card balances, or getting additional secured credit cards.

Mortgage Loan Applicants who need to get qualified for home loan with a lender with no overlays, please contact us at 1-800-900-8569 or email us at gcho@gustancho.com.

Related> Credit Scores In Mortgage Qualification

Related> Under 600 Credit Scores In Mortgage Qualification

Related> Minimum Credit Scores For Loan Programs

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.

Comments are closed.