One of the most commonly asked questions in the mortgage business is how a borrower's credit score will affect their home loan. The best answer is, your credit score aka your FICO score is a key factor in qualifying you for a mortgage and determining the rate that you would qualify at. FICO Scores can be any number between 300 to 850, with a 300 being considered a Poor FICO score and an 850 being an Exceptional FICO Score.
How does the Mortgage Industry use FICO Scores?
Mortgage Lenders, depending on the product limits use FICO Scores both as an adjustment and a qualification factor. When we speak of adjustments, we mean the rate your qualify form can be adjusted based on where your Credit Score is on the scale of 300 - 850. Industrywide it is generally accepted that a 680 - 740 is considered a good FICO Score, 740 - 800 is considered Very Good and 800+ is considered exceptional. Generally a credit score of 760+ will get you the best rate available from most lenders.
When we speak of Qualifications, we are talking about the minimum credit score, or the credit score required to meet certain loan programs. For a FHA loan the current minimum credit score a borrower needs to qualify for a government insured loan is 580.
Mortgage Brokers and companies with access to a diverse list of products can serve clients with scores under 580. More traditional lenders will not offer mortgages to borrowers with credit scores under the 580 threshold.
So how can you check your credit score, and which FICO score will mortgage providers use?
When evaluating a borrower a lender will use the borrower's median credit score, which is the middle score that the three FICO providers provide. There are three credit reporting agencies in the United States. Equifax, Transunion, and Experian.
How do I find out my Credit Score?
There are many free credit monitoring services that will allow you to check your credit score, as well, many banks and financial companies offer credit scores as part of their banking relationship with you. The Government recommendation is to use the following free website to check your credit score:
This is a government site authorized by federal law, and is completely safe and free. Any US consumer can get a free copy of their credit report once a year from this resource.
How will SunnyHill Financial use my Credit Score, and when is the right time to Pull a report?
It is important to understand the difference between getting pre-qualified and pre-approved. When you are pre-qualified, the mortgage provider will not pull your credit. A pre-qualification will provide the borrower with an estimate of what they will qualify for if they applied for a mortgage that day.
When you are ready to make offers on a property, it is best that you move forward with a pre-approval, at which time your credit will be pulled. A home buyer must be pre-approved before making an offer on a home. This is important because borrowers have a 14 to 45 day window in which their credit will not be effected by credit pulls from multiple lenders, while they shop for a mortgage.
As a borrower, it is important to understand that you should shop as many lenders as you like within that 14 to 45 day window during your mortgage search. This will ensure that you minimize the negative impact to your credit score.
If you found this blog article valuable, you should also read Brian Cooke's blog article on Steps to A Smooth Loan Process: FICO and Credit.
If you have more questions about how your credit score relates to the home loan process, please call 844-648-5512 or email us at email@example.com