Mortgage Underwriting – Credit Score Mysteries

My Continuing Ed class yesterday focused on “solving the mysteries of mortgage underwriting and TRID”. James Williamson, President of Shelter Mortgage and Robbie Crozier – my go to loan officer at Shelter schooled a group of agents at my office on what goes on behind the closed doors of mortgage underwriting.

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When a home buyer calls me and wants to start shopping for houses, the first thing I recommend is to get pre-qualified with a mortgage lender so they can figure out what price home they can comfortably afford. The complex nature of home loans has made it challenging for anyone other than a mortgage loan officer to give good advice about home loans. Here are a few of the top things I learned about credit score mysteries yesterday

Your credit score was created to predict if there will have a 90 day late payment in the next 24 months. These credit scores go by various names:

• FICO (Fair Issac Corporation) is the most commonly used by mortgage underwriters
• Beacon (Equifax Product) is one of the big three credit reporting agenicies – this one located in Atlanta
• Empirica (Trans Union) is the second of the big three
• FICO (Experian product) is the third.

All three Scores are used by each person who will be on the loan. Each company has a different formula for calculating the score and each company has slightly different info and update times when data is reported to them. So credit scores vary slightly from company to company.

• FICO (Fair Issac Corporation) is the most commonly used by mortgage underwriters
• Beacon (Equifax Product) is one of the big three credit reporting agenicies – this one located in Atlanta
• Empirica (Trans Union) is the second of the big three
• FICO (Experian product) is the third.

Scores from all three agencies are used for each person who will be on the loan. Each agency has a different formula for calculating the score and each agency has slightly different info and update times when data is reported to them. So credit scores vary slightly from company to company. Rough scoring ranges from a possible 300 (low) to 850 (high)

• 750 + This credit score is an “A” rating and will make it fairly easy for you to get a home loan.
• 700-750 range will score you a “B” rating which is good for a home loan
• 650-700 ranks a “C” rating with anything below 660 being an above average risk
• 600-650 is a “D” rating. Anything below 620 is considered a high risk.
• 600 and below is considered a problem for getting a home mortgage loan

The Average Credit Score right now is 686. 70% of all consumers have a credit score over 650 which is high enough level to qualify for a mortgage.

Scores less than 620 have a 8 to 1 chance of a late payment in the next 24 months. This is why it is hard (but not impossible) to get a home loan if your credit score is below 620

Credit scores are based on 5 factors

• 35% past payment history
• 30% outstanding balances carried on accounts
• 15% length of credit history
• 10% on types of credit and how much credit
• 10% on recent credit inquiries and new credi

Your credit history goes back 7 years – except chapter 7 bankruptcy which goes back 10 years. There is no limitation on tax liens and criminal records.

Our next post: Seven things that lead to a higher credit score.