No Credit, Good Credit, Bad Credit, Mortgages, and Home Loans

There are many factors that loan officers use to determine a borrower’s eligibility for a mortgage or home loan. One factor is an individual or couple’s credit score. A credit score is formulated based on an individual’s credit report and the goal is to help a lender determine how likely a borrower is to repay a loan. Credit reports are based on payment history, credit utilization, age of credit history, type of credit utilized, and amount of new credit. If someone does not utilize credit or has very limited experience with credit then they have no credit or limited credit history which is detrimental to a credit score because the consumer does not have enough of an established track record to determine their reliability to lenders.

A FICO score is the most commonly used credit scoring method. It is used by both Freddie Mac and Fannie Mae, the government based agencies that back mortgages. Sometimes there is a difference between AGENCY (Fannie and Freddie) guidelines when it comes to credit and LENDER guidelines.  Meaning that Fannie / Freddie / HUD may say they can go down to a 500 FICO score, but the decision is made by the lender loaning the money, and they may maintain a higher credit score standard to avoid problems. There are three major credit bureaus and your credit score may not be exactly the same at each credit bureau. Experian, Equifax, and TransUnion are the leaders in the industry and there are slight variations in their score reporting. There are a variety of options for verifying and tracking the information the credit bureaus use to determine your score. It is best to monitor your reports to verify the information is correct and accurate and to make sure you create and maintain a good credit record.

A higher credit score demonstrates a more appealing borrower to a lender and the individuals with the highest credit scores typically get the lowest interest rates on their mortgages. Oftentimes lenders will have minimum credit score requirements and will not lend to individuals that do not meet those requirements. The minimum credit score requirement will vary depending on the loan type and program and lender. If you have a credit score that is lower than 500 it will be challenging to obtain financing for a mortgage or home loan. The good news is that credit scores can be improved over time and improving your credit score will both make it easier for you to qualify for a mortgage and lower your interest rates, saving you money. FHA loans have a minimum credit score of 580. But there are significant adjustments and extra requirements when FICO scores are this low that can sometimes make it difficult to qualify. To obtain financing for other mortgages you will typically need a higher credit score. For example, the minimum credit score required for a conventional loan is 620. Usually 620 to 640 is sufficient to qualify for most other mortgage products like conventional loans, VA loans, and USDA loans. It is also worth noting that conventional loans have higher pricing adjustments (in the rate) than FHA / VA / USDA.  As a result conventional loans are typically not the preferred loan product for individuals that have a lower credit score.

The mortgage loan officers at Executive Mortgage in Green Bay, Wisconsin are very experienced at pulling and reading credit reports. They can review your credit report with you to determine what kind of loan product and rate you can qualify for with your individual score. If your credit score is not high enough to obtain a low mortgage rate they can guide you on ways to improve your score so you can have an action plan to get the mortgage rate you want. Whether you’re a first time home buyer or have had been through the mortgage application process before our loan officers will be happy to discuss your situation with you. There is no cost and no obligation to speak to one of our loan officers. They can answer any questions you might have and help you make the best decision for your particular situation and needs. Contact Executive Mortgage today!