Credit Score Assessments More "Borrower Friendly"
for Fannie Mae Conventional Loan Borrowers
A "representative" credit score utilized for mortgage application is boiled down to just one single credit score number.
A change recently announced by Fannie Mae regarding their Conventional Loan credit standards will now allow Underwriters to evaluate an averaging of the applicable "middle credit scores" of borrowers hoping to qualify for a loan. This is a major shift in credit scoring direction for the GSE (Government-Sponsored Enterprise).
Here's an example of how this change being made can affect the credit score chosen for a Borrower's use at mortgage approval and thus affect the outcome reached too:
Husband & Wife hoping to borrow together:
Husband's Credit Scores: 598 - 619 - 648
Wife's Credit Scores: 661 - 693 - 695
Using the CURRENT method of scoring, the husband's 619 middle score would make him ineligible to be on the loan with his wife.
Why? It's below the 620 minimum Fannie Mae Conventional Loan requirement currently in place.
But as of September 18, 2021, Fannie Mae's Desktop Underwriter® (DU®) will average the middle scores of each of the two borrowers. The new method will work as follows:
Husband & Wife hoping to borrow together:
Husband's MIDDLE Credit Score = 619
+ Wife's MIDDLE Credit Score = 693
TOTAL Score = 1312
Divided by 2 = 656
Because of this new change, both borrowers will be able to be on the loan and both incomes will be able to be used to qualify for the loan requested.
That's huge and makes this an extremely helpful change being implemented by Fannie Mae. They state that this will "help support homeownership opportunities for more underserved borrowers". I completely agree.
I do need to point out that ...
PMI (Private Mortgage Insurance) companies will continue to underwrite loans at the current standards with lower middle scores still being the representative credit score that determines eligibility for loan approval.
The current method will also continue to determine the rates and costs of providing Private Mortgage Insurance to borrowers.
All in all, the change that will take place at Fannie Mae on September 18, 2021, regarding Conventional Loans is very consumer-friendly. It could, in fact, help many additional borrowers successfully attain their homeownership goals by lifting some credit scoring restrictions. Kudos to Fannie Mae.
If you're interested in finding out how this upcoming change could possibly affect your mortgage options and chances to buy, please reach out to me for further information at:
Gene Mundt, Loan Officer, 815.524.2280, gmundt@goapmc.com.
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