Fannie Mae Removes Minimum 620 Score
It’s all over social media: Fannie Mae removed the minimum credit score requirement and depending on who is talking, it either is a huge win for buyers or an indicator of the end of the world as we know it. I’ve never been good at clickbait, and like everything in our industry this news has some important nuance:
YES: Fannie Mae removed the minimum credit score requirement for their automated underwriting software which evaluates loan applications and determines which meet their risk standards, so borrowers with scores under 620 are not automatically disqualified as of 11/15
NO: The software has not relaxed its overall risk assesment criteria, which evaluates everything from the payment history described on the credit report, utilization percentage of credit cards, presence of collection accounts, etc. Basically, it is still grading the same data on the credit report that the scoring system is, but within the context of the full loan application, so strength in other areas may overcome weakness in the credit history. Here’s the source on what is evaluated
Who This Helps: Moderate income borrowers with 20% down payments, people with lower scores who can not qualify for FHA loans due to their work visa status or old defaulted federal debt, and potentially couples where one person has a lower score and both are needed to qualify.
Who this probably doesn’t help: Buyers who have lower scores and lower down payment amounts- conventional mortgages require private mortgage insurance, which may not be available at lower scores and is likely to be prohibitively expensive if it becomes available.
Don’t get discouraged! The good news here is that for those buyers who have a lower score, there’s still a program for you. FHA loans are not new or exciting, but minimum scores are 580 with 3.5% down and 500 with a 10% down payment. If you have 12 months of on time payments on your credit report, your credit history most likely qualifies for an FHA loan.
Zero doesn’t count: Keep in mind that a zero score is treated differently than a low credit score, since a score of 0 means there is an absence of credit history versus the presence of negative credit history. The loan pricing is going to still be worst case scenario, generally, but the underwriting is actually pretty straightforward! I have closed several of these borrowers whether they are Dave Ramsey fans or just don’t use credit.
