CREDIT SCORING FOR MORTGAGE PURPOSES
What Your Score Means With Regard to a Mortgage Program
Credit scoring normally places you in one of three general categories. Depending on which category you fall into will normally dictate the types of mortgage programs you qualify for as well as the mortgage rate you will be able to obtain.
1. A score of 680 or above – You may be considered an A+ borrower. Your loan will involve basic underwriting, probably through a computerized automated underwriting system such as DU (Direct Underwriting) and could be completed within minutes. Strong liquid assets are recommended in order to expedite your loan application. If you are in this category, you have a good chance of obtaining a low interest rate and closing your loan quickly.
2. A score below 680 but above 620 – An underwriter will take a closer look at your file to determine potential risks. If you fall within this category you will need strong liquid assets totaling 3 to 6 months of the new proposed payment. If you are in this category, you may find the process and underwriting time no different than in the past. Supplemental credit documentation and letters of explanation may be required before an underwriting decision is made. You may still be able to obtain “A” pricing, but loan closing may take longer than if you had a higher score.
3. A score below 620 – You may not be eligible for the best loan rates and terms offered. However, you may still be able to obtain a competitive mortgage program. If you fall within this category and are in need of a debt consolidation loan your best bet may be to obtain a short-term adjustable rate mortgage in order to get your credit back on track. By obtaining a short-term adjustable rate mortgage and making the monthly payments in a timely manner you should be able to refinance at a later date in time to a more appealing fixed rate mortgage.
The length of time to rebuild your score depends on the reasons why your score is low to begin with. Most decreases in scores are due to delinquencies or excessive credit inquiries. Delinquencies will remain on your credit report for seven years. Most public record items remain on your credit report for seven years, although some bankruptcies may remain for 10 years and unpaid tax liens remain for 15 years. All credit inquiries will remain on your report for two years.
Keep in mind that these general categories are for informational purposes only as all lenders have different lending and underwriting guidelines. There are other factors involved in obtaining a mortgage loan in addition to your credit score.