Credit Scores And Mortgage Application Process
By Gustan Cho
A person’s credit scores constantly changes month after month. If you have higher credit card balances one month, then your credit scores will be lower that month than a month where you have a lower credit card balance. Mortgage lenders will charge a higher interest rate for mortgage loan borrowers with lower credit scores. This is more often the case with conventional mortgage lenders than FHA mortgage lenders. For example, a conventional mortgage loan borrower with a credit score of 620 FICO can be charged a mortgage rate that is 1.0% higher than a conventional mortgage loan borrower with a credit score of over a 740 FICO credit score. If your credit score is fluctuating between 579 FICO and 581 FICO, you need a credit score of over a 580 FICO in order to qualify for a 3.5% down payment FHA loan. If your credit score falls below 580 FICO, you no longer qualify for a 3.5% down payment FHA loan and you need to put a 10% down payment. FHA requires any mortgage loan applicant with credit scores lower the 580 FICO to put a 10% down payment for a home purchase.
Jumbo Mortgage and portfolio mortgage lenders normally require a minimum of a 680 FICO credit score. Your credit score is extremely important in the mortgage application process. Your credit score dictates whether you qualify for a particular mortgage program and the interest rate you get.
Refinance Mortgage Loan Applicants Should Maximize Your Credit Scores
If you are a refinance mortgage loan applicant and intend in refinancing your current mortgage loan, you should carefully analyze your credit scores and discuss with your mortgage loan officer on the breakdown in mortgage rates for the various credit score brackets. If your credit scores are low and you have room for credit score improvements by paying down your credit cards, I strongly recommend that you pay down your credit cards so you have higher credit scores at the time you apply for the refinance mortgage loan so you will get the best possible mortgage rates. Two things that determine your mortgage rates on a refinance mortgage loan is credit scores and loan to value.
When Do Lenders Pull Credit Scores That They Use During Mortgage Application Process
The credit score that mortgage lenders use during the mortgage application process is at the time of the mortgage application. Even though credit scores changes during the mortgage application process, the credit score that is used is the score that is pulled when you complete and sign the mortgage application and disclosures. This credit score is good for 90 days and whether your credit scores go up or down, the credit score that is attached at the time of your signed mortgage application and disclosures will be the official credit score that they will go with throughout the mortgage application process. In the event if your mortgage loan does not close in 90 days, a new credit report needs to be pulled and that new credit report will be used. If your credit score is the same or higher, you should have no problem. However, if your credit scores have dropped and has dropped significantly where you no longer meet the minimum mortgage lending guidelines, then you can have a problem and not qualify for the mortgage loan.
Monitor Your Credit Report During Mortgage Application Process
Whether your credit scores changes during the mortgage application process, you should still be extremely careful on how you manage your finances. You need to be aware that your credit scores that your mortgage lender is using is only good for 90 days and if your credit scores drop significantly after the 90 day period, you may not be eligible and qualified for a mortgage loan. Do not pay off any collection accounts during this time. Paying off an old collection account will drop your credit scores significantly. Do not overload your credit cards or apply for new credit. Do not buy a new car. Do not close out any credit accounts. Never skip a payment even if the minimum payment due is $5 dollars per month. Do not purchase new items such as furniture or appliances. If you have any questions, contact and discuss it with your mortgage loan originator.