This BLOG On Mortgage With Marginal Credit Scores And Bad Credit Guidelines Was UPDATED On August 9th, 2018
Applying for a mortgage with marginal credit scores can be extremely risky.
- Every mortgage loan program has minimum credit score requirements
- Most lenders have overlays
- A lender credit score requirements may be higher than the minimum federal mortgage guidelines
- For example, to qualify for a 3.5% down payment home loan, FHA requires a minimum credit score of 580
- Borrowers can qualify for an FHA loan under 580 credit scores and down to 500 FICO but need a 10% versus 3.5% down payment
In this article, we will discuss and cover qualifying for a mortgage with lower credit scores.
Case Scenario Of Qualifying For An FHA Loan With Lower Credit Scores
Here is a case scenario:
If borrowers get a loan pre-approval letter by a loan originator:
- their credit scores are at 580
- they are shopping for a home
- sometime later they find a home they like to place an offer
When they formally apply and credit scores fall below 580 credit scores, they will no longer qualify for an FHA loan.
Boosting And Improving Credit Scores During The Mortgage Process
Borrowers who are pre-approved for a mortgage with marginal credit scores need to start working on trying to improve their credit scores as soon as possible:
- Borrowers take precautions of making sure that their credit scores do not drop after the mortgage loan pre-approval and during the mortgage loan application and approval process
- Borrowers who are applying for a mortgage with marginal credit scores should not be alarmed or paranoid
- With proper precautions, they should not have any issues
- They can close on their home loan
We will discuss advice and tips for borrowers who are seeking a mortgage with marginal credit scores on this blog.
How Credit Scores Play Role In Mortgage Process
Borrowers who are applying for a mortgage with marginal credit scores run the risk of a potential mortgage loan denial if their credit scores drop below the minimum credit score requirements prior to their mortgage loan submission:
- Or in the event, if the mortgage underwriter requests a new credit report during the mortgage loan process
- Credit scores play an extremely important role
- Minimum credit score requirements for FHA Loans are 580
- Minimum credit score requirements for conventional loans are 620
- Minimum credit score requirements for USDA Loans are 580
- The U.S. Department of Veterans Affairs does not have a minimum credit score requirements for VA Loans
- Minimum credit score requirements for traditional Jumbo Mortgages are 700
- Gustan Cho Associates Mortgage Group has non-QM jumbo mortgages for self-employed borrowers that only require 620 credit scores
- Prior to issuing a pre-approval letter, a loan originator will pull applicant’s credit report
- They will make sure borrowers meets the minimum credit score requirements
- Getting a mortgage with marginal credit scores is risky
- This because in the event if loan originator needs to pull the applicant’s credit report and their credit scores drop below the minimum credit score required, borrowers
Needs to wait until he or she can get their credit scores back up.
Credit Report And Credit Report Used In Mortgage Process
Credit scores can change throughout the mortgage process.
- However, lenders will use the credit report and credit score pulled when the loan officer submits with the application to the mortgage processing and underwriting department
- The credit report and credit scores used when submitting the loan application is the credit report and credit scores used throughout the mortgage process
- The credit scores can drop during the mortgage process
- The borrower will still be safe
- This is because the original credit scores submitted is valid for a period of 120 days
- In the event, if the credit report is longer than 120 days, then this is when a mortgage with marginal credit scores can be a deal-breaker
- This because lenders need to pull a new credit report
The new credit scores that show up are the credit scores that will now be used because the older credit report and credit scores are no longer valid.
Cases Where New Credit Report Needs To Be Re-Pulled During Mortgage Process
Borrowers applying for a mortgage with marginal credit scores run into a major risk of getting their loan application and loan approval denied if the following occurs:
- the lender needs to re-pull their credit report during the mortgage loan process
- use the new credit scores from the new credit report
Even though the original credit report and credit scores submitted with the original mortgage loan application is valid for 120 days, there are times when a brand new credit report needs to be pulled:
- when the borrower needs to add a co-borrower or co-borrowers
- or if there is an error made on the mortgage loan credit application
Mortgage Process For Home Loan With Bad Credit
If the borrower has applied for a mortgage with marginal credit scores and needs a new credit report pulled during the mortgage process and their marginal credit scores have dropped the following may occur:
- they will experience a delay in getting their mortgage loan approval
- delay with getting issued a clear to close
- clear to close will not be issued until they can get their credit scores back up
- the reason being is so they can meet the minimum credit score requirements
Borrowers needing mortgage with marginal credit scores have come to the right place. We specialize in helping borrowers get mortgages with marginal credit scores. Please contact Gustan Cho Associates at 1-800-900-8569 or text us for a faster response. Borrowers can email us at firstname.lastname@example.org.
June 14, 2020 - 4 min read