Conventional mortgages with less than a 620 credit score? Yep it’s real

The government just made a small change to residential mortgage loans opening the door for more families to secure conventional financing. Here is what you need to know if you’re purchasing or refinancing a house and your credit score needs some love.

I’ve been told recently the only residential mortgage loan that was available to mortgage borrowers with less than a 620 credit score was an FHA or AVA residential mortgage loan to purchase or refinance a primary home. Conventional mortgages contained a middle credit score requirement of 620. This credit score requirement made it difficult to hope that conventional financing was potentially just a few points away. If you had a 620 to 180 credit score you could not get a conventional mortgage. It would not pass automated underwriting through Fannie Mae or Freddie Mac. The government made a change that eligible borrowers can qualify for conventional financing with as low as a 600-credit score. This is particularly important because a 600-credit score can mean getting a loan that may have PMI. This is dischargeable whereas the PMI on the AFA chamber is permanent.

Conventional financing is the most desired type of financing available. For most families, this also means if you have a ton of equity in your property for example, but your credit score just needs a little bit of work you can now get conventional financing whereas before you couldn’t. The caveat is that your file still needs to go through automated underwriting and still obtain approve eligible findings through Fannie Mae’s desktop underwriter or through Freddie Mac a loan prospector will need to get an “accept”. It also means that if you’re going to be looking at conventional financing and your credit score is less than 620 but 600 or greater, you’re probably going to be subject to additional points and fees. Those additional points and fees will vary based on the overall parameters of your file loan amount and occupancy. Big picture though, you can now use conventional financing with as little as a 600 credit score to purchase or finance a primary home, 2nd home, or yes believe it or not even an investment property. So, credit is starting to loosen a little bit which for the market may be a good thing as it’s going to open the door to more families who can specifically prove their ability to repay while meeting the federal mortgage compliant guidelines.

So, if you’ve been on the fence for a while because you think your credit score needs some work, maybe it does, you should reconsider applying as you might just be surprised about your mortgage chances this time with how easy and how much more streamlined the process might be than in years past.

 

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