This article covers Lenders Increasing Credit Score Requirements Due To COVID-19

Most borrowers have noticed that Lenders Increasing Credit Score Requirements Due To COVID-19 Outbreak.

• Lenders across the board have raised their minimum credit score requirements on government and conventional loans due to the coronavirus pandemic
• The good news is that FHA, VA, USDA, Fannie Mae, and Freddie Mac did not tighten their minimum lending requirements
• The minimum credit score requirement for a 3.5% down payment home purchase FHA loan is still 580 FICO
• Borrowers can still qualify for an FHA loan with under a 580 credit score and down to a 500 FICO with a 10% down payment
• The VA still does not have a minimum credit score requirement
• This holds true as long as they can get an approve/eligible per automated underwriting system (AUS)
• All mortgage borrowers need to meet the minimum credit score requirements of FHA, VA, USDA, Fannie Mae, or Freddie Mac
• However, lenders can have their own lending guidelines that are above and beyond those of FHA, VA, USDA, Fannie Mae, and/or Freddie Mac
• These higher credit standards are called lender overlays
• Most mortgage lenders have overlays on government and conventional loans
• However, Gustan Cho Associates has no lender overlays on government and conventional loans
• During the coronavirus pandemic, lenders have drastically spiked up their credit score requirements on home mortgages
• Some lenders now require a 680 credit score requirement on FHA loans
• Some lenders will not take a VA loan application unless the borrower has a minimum of a 660 credit score
• This holds true even though the Veterans Administration does not have a minimum credit score requirement on VA loans

Lenders Increasing Credit Score Requirements Due To COVID-19 Outbreak And The Secondary Market

The coronavirus pandemic has turned the mortgage markets upside down.

• The good news is borrowers with great credit and income can now qualify for a home mortgage at historic low mortgage rates
• However, borrowers with less than perfect credit are having major issues qualifying for a mortgage
• This holds true even though they may qualify for a mortgage and meet all agency mortgage guidelines
• Most lenders have imposed tougher lending requirements due to the shakeup in the secondary market
• The secondary mortgage bond market is leery and careful of potential mortgage defaults
• Investors on the secondary mortgage bond market do not want to invest in risky mortgage loans
• By risky loans, borrowers with under 700 credit scores are called risky home mortgages
• Many borrowers who had solid pre-approvals with lower credit scores got a notice from their loan officers the pre-approval was null and void
• Since the majority of lenders increased credit score requirements during the coronavirus outbreak, lenders like Gustan Cho Associates got flooded with borrowers who were turned down by other lenders

Gustan Cho Associates is one of the very few national lenders who still remained a no lender overlay lender during the coronavirus outbreak.

Agency Mortgage Guidelines Versus Lender Overlays: What Are Lender Overlays

Mortgage companies can impose lender overlays on just about anything. All lenders need to have their borrowers the minimum agency mortgage guidelines. However, lenders can have higher lending standards that are above and beyond the minimum agency mortgage guidelines which are called lender overlays. Lenders can set lender overlays on just about anything.

Here are common lender overlays imposed by mortgage lenders:

• Lenders can set a higher credit score requirement than the minimum credit score required by agency mortgage guidelines
• Lenders can set lender overlays on debt to income ratios
• Lenders can not take any borrowers that need manual underwriting on FHA and VA loans
• Lenders can not accept gift funds to main borrowers
• Lenders can set a minimum credit score requirement on VA loans when the VA does not have a minimum credit score requirement
• Lenders can decide not to accept VA and/or FHA loans during Chapter 13 Bankruptcy repayment plan when both the VA and HUD allow borrowers to qualify
• Lenders can require a one to two-year waiting period after Chapter 13 Bankruptcy discharged date when both FHA and the VA does not have a minimum waiting period requirement

Lenders can have lender overlays on just about anything. This is why not all FHA lenders have the same lending requirements on FHA loans. Gustan Cho Associates  Mortgage Group is one of the very few national lenders with no lender overlays. We did not have overlays prior to the pandemic and have no lender overlays during the coronavirus outbreak. To qualify for a mortgage with a lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays.