Fannie Mae recently issued some new credit guidance, allowing mortgage lenders to remove the minimum credit score requirement for conventional financing. Instead of relying on a single credit score, lenders look at income, debt, and payment history when reviewing an application.
What Changed
Historically, conventional mortgage loans required a minimum FICO credit score of 620. With recent changes to lending guidelines, there is no longer a minimum credit score needed to determine eligibility.
How Lenders Review Your Application
Rather than relying on a single credit score, the underwriting process takes into consideration multiple financial factors, including:
- Stable income and employment, and a history of paying bills on time (rent, utilities, etc.)
- Debt-to-income ratio
- Credit trends and overall credit activity
- Savings and available funds compared to the loan amount
What This Means for Borrowers
This update allows more flexibility for applicants with limited credit history or lower credit scores. Borrowers with scores below 620 may receive approval when income, debt, and payment history are strong. It benefits first-time homebuyers and borrowers with limited credit who consistently pay their bills on time.
Lending Standards Remain the Same
Federal housing officials have stated that this change does not lower lending standards. It looks at more than one number when reviewing a mortgage application. Lenders can still set their own interest rates and fees, which can depend on a borrower’s financial profile.
The Bottom Line
Mortgage lenders review the full financial picture for conventional loans. Credit scores still matter, but they are no longer an automatic trigger for a borrower to get denied.
For questions, please feel free to call Bluefire Mortgage Group at (760) 930-0569.
