Qualifying Credit Score For Mortgage Used By Lenders

Qualifying Credit Score For Mortgage Used By Lenders

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover the qualifying credit score for mortgage used by lenders. The qualifying credit score for mortgage by mortgage underwriters is the middle credit score on a tri-merger credit report. The loan officer will first pull a tri-merger credit report when a mortgage applicant applies. Not all creditors pull a tri-merger credit report from loan applicants.

Auto finance companies, credit card companies, student loan companies, and personal loan creditors normally pull applicants’ credit from one of the three credit bureaus. However, due to the size of an average mortgage being close to $300,000 and the complexity of the mortgage process, mortgage companies require a tri-merger credit pull versus a single credit bureau credit pull. All mortgage companies will do a tri-merger credit report and use the middle credit score of the borrowers when qualifying mortgage loan applicants for home loans.

What Is Tri-Merger Credit Report?

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A tri-merge credit report is also referred to as a 3-bureau credit report. A tri-merger credit report is also called a residential mortgage credit report (RMCR). All mortgage companies use a tri-merger credit report to determine the qualifying credit score of mortgage loan applicants.

The tri-merger credit report is a single comprehensive report of the loan application that consists of data from each of the three major credit reporting agencies. (Equifax, Experian, and TransUnion) consolidated into one report.
What Is Tri-Merger Credit Report

What Is The Qualifying Credit Score For Mortgage Used By Lenders?

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When a lender pulls a mortgage applicant’s credit report. The tri-merger credit report pulls credit from all three credit bureaus. Mortgage loan applicants, therefore, have three credit inquiries when a tri-merger credit report is pulled.

What Credit Score Do Lenders Use? The two main companies that produce and maintain credit scoring models are FICO® and VantageScore. Lenders most commonly use the FICO® Score to make lending decisions, and in particular, the FICO® Score 8 is the most popular version for general use.

When you apply for other credit, such as a credit card, the credit card company will pull your credit from only one credit bureau, not all three like lenders. Borrowers with co-borrowers and non-occupant co-borrowers will also have tri-merger credit reports pulled.

Qualifying Credit Score Determined By Lenders

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Qualifying Credit Score For a Mortgage is used for two purposes:

  1. Meet minimum credit score requirements
  2. Determine Mortgage Rates

Lenders will get three credit scores when they pull a tri-merger credit report. Each credit bureau will yield a different credit score for the mortgage applicant. Lenders will use one of the three credit scores and not average the three scores. Mortgage lenders will use the middle credit score of the three scores.

Which Credit Score Is Used If a Co-Borrower Is Used For a Mortgage?

Suppose the main borrower has a co-borrower or multiple non-occupant co-borrowers. In that case, lenders will use the lower middle credit score of any co-borrower and non-occupant co-borrowers.

What credit score is needed for a co-signer? As a co-signer, you stand in the primary applicant’s place during the approval process. You’ll need a minimum 580 median FHA or VA loan score. For a conventional loan, Gustan Cho Associates requires a qualifying score of 500 FICO on both FHA and VA loans.

Many consumers monitoring their credit scores through Credit Karma and other third-party credit monitoring services can have scores quite different from the mortgage credit scores pulled by lenders. The credit scores that lenders use are called mortgage credit scores.

Are Mortgage Credit Scores More Accurate Than Credit Karma?

Mortgage credit scores have been programmed with unique special algorithms, specifically tailoring risk factors of borrowers in obtaining a new home mortgage and their ability to repay.

Credit Karma and other third-party credit monitoring service providers provide you will find consumer credit scores. Consumer credit scores may be significantly different than mortgage credit scores.

How Credit Scores Work During Mortgage Process

Many consumers do not understand why they have three different credit scores. Clients and our viewers often contact us at Gustan Cho Associates and want an explanation and purpose for having three different credit scores. There are three main credit bureaus in the United States:

  • Transunion
  • Experian
  • Equifax

Each of the three main credit bureaus has its own way of calculating a consumer’s credit score. Each consumer will have a different credit score from the three credit bureaus. Each consumer will have a different credit score because each bureau has its own algorithms for how determining each consumer’s credit score.

Mortgage lenders use the middle scores of an applicant to determine a qualifying credit score for mortgage borrowers. So if Experian yields the middle credit score of the mortgage applicant, the Experian credit score will be used. The qualifying credit score for a mortgage will be the middle credit score. That middle credit score will be used throughout the mortgage process until the loan closes. The qualifying credit score is good for 120 days.

Qualifying Credit Score For Mortgage: Case Scenario

Qualifying Credit Score For Mortgage

For example, let’s take a case scenario on how lenders determine a qualifying credit score for mortgage borrowers:

  • Transunion’s credit score is 600
  • Experian is 650
  • Equifax is 700

The middle score is 650, so the lender will use the 650 as the qualifying credit score for the borrower. Some commercial lenders will choose whichever credit bureau they prefer. For example, some lenders will use Equifax. Whatever Equifax’s credit score is, that will be the qualifying credit score for the mortgage borrower. Some auto lenders will only use Transunion, and so will credit card companies. It is up to the specific creditor which credit score they will go by in evaluating credit.

Qualifying Credit Scores If The Borrower Has Co-Borrowers

If the main borrower has co-borrowers, Fannie Mae allows the middle credit scores of the borrower and co-borrowers to get averaged. If the borrower has a 600 FICO and the co-borrower has a 700 credit score, Fannie Mae will allow the two middle credit scores to get averaged on conventional loans.

How Do Credit Bureaus Evaluate Qualifying Credit Score For Borrowers

Each of the three credit reporting agencies uses a different way of deriving credit scores. Equifax is the only credit reporting agency that sells FICO credit scores to consumers. Equifax uses the BEACON terminology to refer to the credit scores sold to other businesses. The Equifax credit score ranges from a low of 350 to a  high of 850.

Experian and Transunion have their own credit scores based on the FICO credit scoring system. The Experian credit scoring model is known as Experian-Fair Issac Risk Model or PLUS, and their low score is 330, and the highest score is 830. The Transunion credit scoring model is known as EMPIRICA, and the low score for Transunion is 300, and their highest score is 830. Experian and TransUnion developed their credit score calculations based on the FICO scoring model.

How Do Credit Bureaus Work?

How Do Credit Bureaus Work?

Each of the three giant credit reporting agencies collects data from consumers independently and normally share their data. Many creditors report their results to all three credit bureaus.

However, not all creditors report them to all three. Some creditors only report to one or two out of the three credit bureaus. For example, ABC Bank can report late payments of a consumer to Transunion and Experian but not Equifax. Equifax’s credit report may be higher because the late payment from ABC Bank is not being reported to Equifax.

Mortgage Applicant’s Credit Risk Determined By Lenders

It is not mandatory for creditors to report consumer payment history to the credit bureaus. Consumers have a file at each of the three major credit reporting agencies (EXPERIAN, EQUIFAX, TRANSUNION). It is not the responsibility of the credit bureaus to get credit information on consumers. It is the creditors that report payment history information to the credit bureaus. Creditors do not have to report to all credit bureaus.

What Is The Tri-Merger Credit Report Used By Mortgage Lenders?

Some creditors may report consumer credit payment information and updates to one or two credit bureaus. Most creditors will report consumer payment history and credit information to all three credit bureaus. Therefore, all three credit bureaus may not have the same information and data on a particular consumer.

This is why mortgage lenders want all three credit reports of mortgage applicants. Lenders want each borrower’s overall credit profile to ensure no hidden debt and derogatory credit tradelines may impact the borrower’s qualification.

How Much House Can You Afford?

The number of debts compared to the borrower’s income can impact their ability to repay their new mortgage loan. The average mortgage loan is $300,000. This is a lot of money for any lender to fund. Therefore, lenders are more strict when processing and underwriting a home mortgage than other creditors.

This is why mortgage lenders use a tri-merger credit report. It enables lenders to compare and contrast each of the three credit bureaus containing the data of the mortgage loan applicant. If two credit bureaus do not report on a particular credit tradeline, the third would.

Qualifying For A Mortgage With A Lender With No Lender Overlays

Home Buyers who need to qualify for a mortgage with a national mortgage company licensed in multiple states with no overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates is a national mortgage company licensed in multiple states with zero mortgage lender overlays on government and conventional loans.

Gustan Cho Associates are Mortgage Brokers licensed in 48 states, including Washington DC, Puerto Rico, and the U.S. Virgin Islands, with over 190 wholesale lenders. Over 80% of our borrowers could not qualify at other lenders. Contact us at gcho@gustancho.com or call us at 262-716-8151. Text us for a Faster response. Visit our information websites at www.gustancho.com.

Gustan Cho Associates has a national reputation for being a one-stop mortgage shop due to offering government and conventional loans and a wide variety of alternative and non-QM loan programs.  Gustan Cho Associates are also experts in non-QM loans such as bank statement mortgages, one day out of foreclosure, one day out of bankruptcy, asset-depletion mortgages, fix and flip mortgages for real estate investors, and commercial loans. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

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