Minimum Credit Score Means You Can Try

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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
  • Bankruptcy
  • Foreclosure
  • Repossession

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



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