Why Do Lenders Have Different Requirement On Credit Scores

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This blog on Why Do Lenders Have Different Requirement On Credit Scores Was PUBLISHED On July 5th, 2019

Why Do Lenders Have Different Requirement On Credit Scores And Individual Lender’s Requirement On Credit Scores:

  • There are mortgage lending guidelines on the minimum requirement on credit scores in order to qualify for a particular mortgage loan program
  • For example, to qualify for a 3.5% down payment FHA Loan, the minimum credit score required by the mortgage loan applicant is 580 FICO
  • This minimum 580 FICO credit score is the bare minimum required per HUD lending guidelines to qualify for a 3.5% down payment mortgage loan
  • However, individual lenders can set higher standards than the minimum HUD guidelines with regards to which minimum credit scores they are willing to accept
  • The higher mortgage lending standards set by the mortgage lender is called lender overlays
  • Most mortgage companies and banks have lender overlays
  • Good news is that there are lenders like myself that do not have lender overlays and will just go off the DU FINDINGS from the Automated Underwriting System
  • Same with Conventional Loans
  • Minimum credit scores required on conventional loans per Fannie Mae and/or Freddie Mac mortgage guidelines are 620 Credit scores
  • However, many conventional lenders may have overlays on credit scores where the minimum credit scores required may be 680, 660, or 640 FICO
  • This holds true even though the minimum credit scores required is 620 FICO per Fannie Mae and/or Freddie Mac lending guidelines

In this blog, we will discuss Why Do Lenders Have Different Requirement On Credit Scores.

Why Do Lenders Have Different Requirement On Credit Scores And Not Meeting Requirement On Credit Scores

Unfortunately, many mortgage loan applicant goes to a lender to qualify for a mortgage loan and are often told that they do not qualify because they do not meet the mortgage lender’s minimum credit score requirements.

  • Many loan officers do not tell home loan applicants that just because they do not meet the particular mortgage lender’s minimum credit score requirements that they can qualify with a lender with no overlays
  • For example, just this morning, a mortgage loan applicant called me and told me that she was told that she did not qualify by multiple mortgage lenders
  • Some lenders told her that she did not qualify because minimum credit scores to qualify for FHA Loans was 640 FICO
  • Other lenders told her that the minimum credit scores required to qualify for a 3.5% down payment FHA insured mortgage loan was 620 FICO
  • This mortgage loan applicant’s credit scores were 589 FICO

Not a single loan officer told her that she meets minimum FHA guidelines with regards to credit scores and just told her she does not qualify for a mortgage loan.

Agency Mortgage Guidelines Versus Lender Overlays

Minimum FHA lending guidelines with regards to credit scores is 580 FICO.

  • Fortunately, this mortgage loan applicant was one of those consumers who will not take no for an answer and found me on the internet
  • After talking to her and going over her credit and financial profile, she is more than qualified for an FHA insured mortgage loan with 3.5% down payment
  • She has no late payments in the past 12 months, full-time employment, verification of rent, and more than enough funds for the down payment
  • More than 75% of our borrowers are folks who were told they did not qualify elsewhere

If you are told that you do not qualify for an FHA or Conventional Loans because of the overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are mortgage bankers and correspondent mortgage lenders with no overlays.

This Article On Why Do Lenders Have Different Requirement On Credit Scores Was UPDATED On July 5th, 2019.

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