Credit Scores And Credit Report
Credit scores is what determines you mortgage rates and whether or not you qualify for certain mortgage loan programs. For example, to qualify for a FHA loan with a 3.5% down payment, you need a minimum credit score of 580 FICO. You can qualify for a FHA loan with credit scores under 580 FICO, however, you need a 10% down payment. To qualify for a conventional loan, a mortgage loan applicant needs a 620 FICO credit score. To qualify for a jumbo mortgage, most jumbo mortgage lenders require a 700 FICO credit score. However, mortgage lenders will also look at the mortgage loan borrower’s credit report. Mortgage loan underwriters will carefully review both a borrower’s credit scores and credit report in determining the credit risk of the mortgage loan applicant.
Things What Underwriters Look On Credit Report
A mortgage underwriter will look a the overall credit history on a borrower’s credit report. If a mortgage loan applicant has an overall 10 year credit history, the mortgage loan underwriter will look at the period of bad credit history and will want to question that. Most likely, the mortgage loan underwriter will ask for a letter of explanation on the period of bad credit. On a 10 year credit history, maybe the mortgage loan applicant had a streak of bad credit on year 5 and year 6 where he or she had collections, charge offs, and late payments and back on year 7 the mortgage loan applicant started to re-establish their credit again. Mortgage loan underwriters will want to know what happened on year 5 and year 6. The mortgage loan applicant needs to write a letter of explanation on why their credit was bad during those periods. Common reasons why consumers have periods of bad credit is due to unemployment, divorce, and medical issues or other extenuating circumstances. Mortgage loan applicants should not freak out when an underwriter asks for letter of explanation. There is no right or wrong answer and they just want to know that you are not a irresponsible person and that the period of bad credit was due to an extenuating circumstance and not due to financial irresponsibility. Consumers do go through periods of bad credit when they lose their jobs or due to circumstances beyond their control and mortgage lenders do understand that.
High Credit Scores Does Not Guarantee Mortgage Approval
Just having a high credit score does not mean you are home free and guaranteed a mortgage loan approval. Credit scores is what initially qualifies you for a mortgage loan. Your credit history on your credit report will be carefully reviewed. What underwriters look on credit report is to see if you have been timely on your payments in the past 12 months. Mortgage underwriters do not want to see any late payments in the past 12 months. You can have prior bad credit, a prior bankruptcy, and prior foreclosure but they want to see no late payments after your period of bad credit, prior bankruptcy, and prior foreclosure. Mortgage underwriters want to see on time payment history and re-established credit in the past 12 months.
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