BREAKING NEWS: Lenders Increasing Credit Score Guidelines Due To Coronavirus Pandemic
The coronavirus pandemic shook the US economy.
- Not only has the stock markets plummeted, but the pandemic also created chaos in the mortgage markets
- Many mortgage lenders raised their minimum credit score requirements to 640 to 680 FICO
- Besides raising credit score requirements, many lenders with no overlays imposed lender overlays on debt to income ratio caps
- The 2 trillion coronavirus stimulus package devastated nonbank mortgage lenders
- Included in the stimulus bill was the ability of unemployed homeowners to receive a mortgage forbearance for up to 12 months
- While borrowers are given a forbearance where they do not have to make mortgage payments up to 12 months, servicers still need to pay monthly principal and interest payments to investors
- Mortgage servicers also need to pay property taxes and homeowners insurance
In this article, we will discuss and cover why Lenders Increasing Credit Score Guidelines Due To Coronavirus Pandemic.
Lenders Increasing Credit Score Guidelines For Borrowers With Bad Credit
Government and Conventional Mortgage Guidelines did not change yet due to the coronavirus pandemic.
- However, over 90% of the lenders are in chaos as of what direction to take
- All non-QM lenders have suspended operations for at least two weeks to 30 days
- Some non-QM lenders went out of businesses due to the coronavirus economic meltdown
- Will this be the end of non-QM loans?
- Angel Oak Mortgage Solutions said they have cut 200 jobs out of 275 and has suspended operations for two weeks
- Angel Oak Mortgage Solutions plans on resuming originating and funding non-QM mortgages
- However, expect the company will restructure its business model and tighten credit standards and guidelines
- One of the things Angel Oak Mortgage Solutions may implement is higher credit score requirements, lower debt to income ratios, and higher down payment requirements
Most lenders that allowed FHA loans down to 580 FICO have imposed lender overlays increasing credit scores to at least 640 FICO or higher.
Is It Possible To Qualify For A Mortgage With Under 620 Credit Scores?
Gustan Cho Associates Mortgage Group will still originate and fund FHA and VA Loans for borrowers with under 620 credit scores.
- However, the pricing on borrowers with under 640 credit scores will be higher than it used to due to the mortgage crisis
- For example, borrowers with under 620 credit scores on VA and FHA loans may need to pay discount points
- Any borrowers with under 640 credit scores will have higher mortgage rates due to risk
- Many lenders stopped accepting mortgage loan applications on borrowers with under 640 credit scores
Fortunately, Gustan Cho Associates will still originate and fund under 620 credit score borrowers on FHA and VA loans.
Importance Of Having High Credit Scores For Mortgage Borrowers
Mortgage rates are at an all-time low for borrowers with higher credit scores. Conventional borrowers with higher than 740 credit scores can get mortgage rates in the mid 3.0%. FHA borrowers with at least 680 FICO can get great mortgage rates. However, borrowers under 640 credit scores will get higher rates and may need to pay discount points for now. Can things change in the near future for lower credit score borrowers? Nobody has a crystal ball. Pricing can get better in the coming days and/or weeks. However, it is unlikely for lenders who have increased their credit score overlays to lower it in the near future. It is very important for borrowers to try to maximize their credit scores prior to applying for a mortgage. Your loan officer should be able to help you maximize your credit scores. One of the quick fixes to boost your credit scores is paying down your credit card balance to a 10% utilization ratio. This is a developing story. Gustan Cho Associates Mortgage Group will update our viewers with new developments to this story in the coming days and/or weeks.
April 3, 2020 - 3 min read