How Lenders View Your Credit Score for Mortgage Approval

Credit Score Guidelines in the ever changing housing market, if you want a mortgage, it can help for you to know your credit score.

So you are ready to take that challenging step to refinance your current mortgage or purchase your dream home; but do you know what your credit score is and how it will stand up to Lender’s current guidelines? With the obvious strain on the housing market today, Lender and Investors are really cracking down on the level of credit risk they are willing to accept. When you seek out a mortgage, each Lender that you go to will pull your credit report, and you are entitled to receive a copy of this so that you can see where your score ranks and how it will hold up in their approval process.

Lenders will assess the content of your credit report within their underwriting department to determine how much risk would be involved in financing your particular mortgage. Each lender has specific programs available according to your credit score, income and your overall ability to repay the mortgage. These programs have a certain set of guidelines that must be followed in accordance with government regulations.  For example, Fannie Mae has recently raised their minimum credit score requirement from 580 to 620. They now consider any credit score under 620 to be high risk and may question the customer’s ability to repay the mortgage without the possibility of default.

When these large agency investors, like Fannie Mae, have their set minimum credit score requirement it needs to be made aware that most other mortgage lenders may not agree that those minimum requirements are strict enough for them to comfortably lend on. So these individual mortgage lenders will set their own criteria called credit overlays to determine what is acceptable for their lending practices. Meaning, FNMA could accept a credit score of 620, but your local bank may only be willing to provide a mortgage product with a credit score of 660 or higher. Again, the question arises how your credit score fits into all of the mandatory regulations.

If you find that your credit score is outside of your lender’s guidelines, then you can research what steps you could take to better your mortgage financing situation. It is possible to obtain a rapid rescore with the credit bureaus, if you find that something may be showing incorrectly on your credit report or you want to pay down a balance on a credit card or pay it off entirely. When reporting these actions to a credit agency with the appropriate documentation, they may be able to get the creditors to update the information on your credit report with the possibility of raising your credit score.

In conclusion, make yourself well aware of your lender’s guidelines and where your credit score fits in to accommodate your mortgage needs. Take the steps necessary and available to you to possibly improve your credit score by paying a balance off or down and/or attempt to remove inaccurate negative information reporting on your credit report. If this is all just too overwhelming, it may also be a great idea to seek out help from a legitimate credit repair service company that is familiar with the actual laws that pertain to what it might take to update your credit score in a positive manner. Having a head start with where your credit score stands and getting educated on the ever changing housing market regulations could help you get the appropriate mortgage financing you need.