Minimum credit score is top of mind for prospective home-buyers. Since the mid 2000’s, both credit and credit scores have become central in the home loan approval process. After-all, the mortgage industry buckled at the knees because largely due to loose credit requirements.
While credit is more important than ever, a minimum credit score’s significance still confuses many home-buyers. First and foremost, a Minimum credit score identifies the very lowest credit score a loan program allows. In fact, think of a minimum credit score as the key that opens the door. However, its not what allows you to enter the room.
In other words, homeowners are “eligible” for a home loan when they meet minimum credit score requirements. Their minimum credit does not determine approval, only eligibility. Sports fans think of it like this – credit score is the minimum age required to play in a basketball league. While Uncle Hank may be old enough, he may not survive tryouts. In the end, Uncle Hank is just old. However, sadly Hank is not a player.
If Not Just Credit Score, Than What?
Mortgage Underwriters look at much more than a borrower’s credit score. They profile, credit quality in addition to credit scores. For example, underwriters review:
- Payment patterns
- Payment history
- Collections and judgments
Each of these might indicate a borrower is “credit abuser/credit risk” despite meeting minimum credit score requirements.
In addition, Underwriters search for unresolved. Borrower’s currently in default on Federal Debt (ex: student loan) are ineligible for certain home loans regardless of credit score. Home Loan Applicants must also be a predetermined number of yeas past a bankruptcy, foreclosure, short sale or deed in lieu of foreclosure. Judgments and Federal Tax Liens are also potential credit related show stoppers. Borrower’s with unpaid judgments and/or tax liens are not able to pass go.
Credit scores are just the beginning. Credit history and quality both weigh heavily into a consumer’s ability to obtain a new home loan.
By Jeremy House