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FICO Scores and Mortgage Underwriting Decisions
FICO Scores as Guidelines
FICO scores are only "guidelines"
and factors other than FICO scores affect underwriting decisions. Some examples of
compensating factors that will make an underwriter more lenient toward lower FICO scores
can be a larger down payment, low debt-to-income ratios, an excellent history of saving
money, and others. There also may be a reasonable explanation for items on the credit
history which negatively impact your credit score.
They Don't Always Make
Sense
Even so, sometimes credit scores do not seem to make any
sense at all. One borrower with a completely flawless credit history had a FICO score
below 600. One borrower with a foreclosure on her credit report had a FICO above 780.
Portfolio & Sub-Prime Lenders
Finally, there are a few
"portfolio" lenders who do not even look at credit scoring, at least on
their portfolio loans. A portfolio lender is usually a savings & loan
institution who originates some adjustable rate mortgages that they
intend to keep in their own portfolio instead of selling them in the
secondary mortgage market. They may look at home loans differently. Some
concentrate on the value of the home. Some may concentrate more on the
savings history of the borrower.
There are also
"sub-prime" lenders, or "B & C paper" lenders, who will provide a home
loan, but at a higher interest rate and cost.
Running Credit Reports
One thing to remember when you are shopping for a home loan
is that you should not let numerous mortgage lenders run credit reports on you. Wait until
you have a reasonable expectation that they are the lender you are going to use to obtain
your home loan. Not only will you have to explain any credit inquiries in the last ninety
days, but numerous inquiries will lower your FICO score by a small amount. This may not
matter if your FICO is 780, but it would matter to you if it is 642.
Credit bureaus do make allowances
if the credit inquiries are grouped in the same time frame from the same
type of institutions.
Credit History is Important
Nowadays, credit scores are important if you want to get the
best interest rate available. Protect your FICO score. Do not open new revolving accounts
needlessly. Do not fill out credit applications needlessly. Do not keep your credit cards
nearly maxed out. Make sure you do use your credit occasionally. Always make sure
every creditor has their payment in their office no later than 29 days past due.
And never ever be more than thirty days
late on your mortgage.
Ever.
copyright 2006 by Terry
Light and RealEstate ABC, revised 2002 |
