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Credit Scores

Fico Scores Conventional Mortgage

 Most home buyers believe if their Fico Score (credit score) is above the minimum threshold they are good to go. This is not the case at all.  The Fico Score is only the minimum threshold.  Underwriting credit is a lot more complicated than a simple a line drawn in the sand. 

But they are the first component in underwriting credit for a conventional mortgage.  Most borrowers have 3 scores, one from each credit repository, Equifax, Experian and TransUnion.


Which Credit Score?

If there are 3 scores which one is the score that is used?  We must choose what is called a Representative Score.  Most credit reports will contain all three scores.  When that is true we must use the middle score, not an average, just the number that is between the other two.  So if there is a 700, 600 and 699 we must use the 699 because it falls between the other two.

If an applicant only has two credit scores the lower of the two is the one that is used. 

If there is only one or no score the applicant is not eligible.

If there are more than one Borrower on the loan the lowest Representative Score is used.


Minimum Fico Score Conventional Mortgage

The minimum Fico Score for a conventional mortgage is 620.  However, any loan application with a score below 640 must also pass some additional requirements even if they receive a DU Approve Eligible response.

The Debt to income ratio must be below 45%.  DTI will be covered in the section on Income.

Scores under 640 require a hit to the price of .500, which could bump the interest rate and thereby cause a problem with the DTI ratio.

No late payments or collections, except possibly medical, in the last 12 months.

All collections must be paid except the medical if the underwriter allows an exception.  This one seems to conflict with the previous one but it doesn’t.  A collection older than 12 months may not kick out the approval but it will require payment in full.

Let’s see, what else?  Oh yeah, bankruptcies must be at least 4 years from discharged and 7 years on a foreclosure. 

It is possible to get by below a 640 credit score on a conventional mortgage but not very likely.  The adjustments to price would probably make it cheaper to go another route.  Here is some information about Why Credit Scores are Important.

Back to Conventional Mortgage Guidelines Index