CREDIT SCORE BELOW 700
Credit scores below 700 are considered “A” paper by this eMortgage community. Scores under 700 can still get the lowest rates available within the mortgage industry by competitive lenders referred through this website.
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If your credit score moves below 700, purchasing or refinancing a home need not be more complicated.
Why certain eMortgage lenders treat Credit Scores below 700 as “A” paper.
Credit scores closer to 800 or scores above 800 are usually considered as the top tier by most mortgage lenders. However, the default rate on scores below 700 down to 660 are essentially just as low as 800 scores. Mortgage loans utilized for both, purchase home loans, refinance mortgages, and cashout refinances with these lower credit scores do in fact perform and the paper is of value to traditional mortgage investors. As such, the right mortgage lenders need not overcharge homeowners because they are able to place their securitizations accordingly.
Most homeowners possessing credit scores above 660 but below 700, are rarely if ever 30 days late with their mortgage payments. Ergo, the definition of “performance”. That is why well money sourced lenders are able to provide very low interest rates and thus the lowest of monthly payments as if your score were actually 700 or better.
Generally, refinance programs and purchase money mortgages are no longer available if mortgage or rent payments have been 30 or more days late in the past 12 months. However, credit above 660, but under 700, is usually held by people with a history of satisfactory house payments. Nevertheless, if this is the situation, being late on a house payment by more than 30 days within the past year, will likely prevent an applicant from actually being approved by any mortgage company. Several years ago, being able to explain late housing payments over the past year, might have made a difference. However, in today's environment, even an 850 credit score with late rent payments, will usually not be approved.
Simply put, when credit scores are above 660 but below 700 and any house payments have been late within the past year, the file will usually not be approved. In these cases, one must usually wait for an entire year from the date of the last late housing payment until applying for a purchase mortgage. This refers to late payments were 30 or more days late. Note that: during any month over past year, if a payment was made late within the month, but not actually thirty days late, it would not disqualify the applicant. Underwriting housing payments only concerns payments that were missed by thirty days or more.
With respect to loss of employment, note that if it is due from lack of work, i.e. a layoff, injury or medical reasons, this would generally be acceptable and understandable.
Medical collections are generally not frowned upon by any mortgage underwriter. Although these items might be bringing your credit score down, they do not disqualify you from approval.
Credit scores below 700 but above 660 are usually escorted by relatively minor glitches within recent years of a homeowner or homebuyer. For purchases and low down-payments, FHA purchase mortgage have become perhaps the most popular in today's environment. These loans are government insured, often more easily obtained; and because of the government support, can make low interest rates more easily available. FHA underwriters are given their own powers of choice and are thus able to make a more human choice in respect to approving or disapproving any particular file. Thus when a homeowner or homebuyer story might seem unusual; however there is provable documentation about particular occurrence(s) associated with “circumstance(s) beyond the applicant's control”, chances for approval are good, if not excellent. If not immediately, usually within the very near future.
Credit scores below 700, but above 660, usually embody several or perhaps many good trade lines on a credit report. This is what makes it possible for mortgage underwriters, both FHA and/or conforming to make approvals. When factors about the personal experience of a file; for example, income and/or when buying a home, a substantial amount of money being put down, can create comfort levels for the underwriter to offset other negative criteria. If a homeowner is refinancing with a credit score below 700, and the total amount of the new loan is proportionately low in respect to the actual appraised value of the subject property, it can also help an underwriter make a positive decision. Often sub 700 credit scores pass underwriter discretion, when income ratios (debt to income ratios) are substantially within the required guideline. The actual amount of years that an individual borrower has on the same job and also the same line of work, can make a difference as well. Extended time periods on the same job or same line of work are often used as “compensating factors” to offset other negatives in an overall credit file.
Strangely enough some credit analysts consider credit scores below 700 to be sub-par credit. If this is so, then certain FHA lenders are consistently financing people with ”less than desirable credit”. However in actuality, when an FHA underwriter approves a credit score under 700, he/she is actually taking many other factors into consideration. By applying a deeper analysis, the approved credit, even sub 700 score, would more likely be considered “good” rather than “bad”. This is simply because the individual has been evaluated and their credit worthiness has been based upon what caused the score to drop below 700 in the first place. In turn, by evaluating and applying other life factors logically, an FHA underwriter can make a determination about the more human side of things rather than solely and simply relying on an algorithm generated by Transunion, Experian and/or Equifax
UNDERSTANDING GENERAL GUIDELINES FOR FHA
FHA loans per official guidelines generally require:
No Minimum credit score and certainly a credit score below 700 would be acceptable.
Two (2) years good housing payment history. (no 30 day late payments)
Two (2) years of good payments on any auto financing, credit cards and/or other consumer lines of credit showing up on your credit report ( a few scattered
30 day late payments are often acceptable, but you will need to be able to explain, why it happened, and why it won't happen in the future.)
No chapter 7 bankruptcy within the past 2 years ( sometimes you can actually get an FHA loan while in chapter 13, if the chapter 13 is 12 months old
with perfect payment history, and no other derogatory credit since the bankruptcy was filed)
No foreclosure within the past 3 years (if foreclosure on credit, you will need to explain why it happened and why it will not happen again, your
explanation will be subject to the approval of an FHA underwriter)
No collection accounts, charge offs, judgments and/or tax liens can be showing an open balance.
Other FHA guidelines that apply are:
LTV maximum is 96.5%
Seller Concessions toward closing costs are allowed:
Up to 6% of purchase price for 96.5% LTV
Escrow impounds are required.
Thus in effect you may be required to pay in advance at closing for several months worth of property taxes and homeowners insurance.