Which FICO Score do Mortgage Lenders Use for Qualification?


You know lenders look at your credit score to determine whether you qualify for a mortgage, but which credit score do they use? If you apply for a mortgage with another person, that’s six credit scores they may be able to use. Which credit scores matter and which scores do they ignore?

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The Lowest Middle Score

You would probably hope that lenders would use the higher credit score between you and your co-borrower right? That would mean that you could qualify for a decent mortgage. Unfortunately, that’s not the case.

Lenders look at each borrower individually. They take the three credit scores from each person and determine the middle credit score. For example, if you had a 660, 675, and 695 credit score, lenders would use the 675 credit score for qualifying purposes. If you applied for the loan on your own, that’s what the lender would use for qualifying.

If you apply for the loan with someone else though, the situation may change. Let’s say your co-borrower has scores of 600, 615, and 620. The lender would use the 615 credit score for this borrower. The lender then compares the middle score between the two borrowers, choosing the lower score for qualifying purposes. In this case, the lender would use the 615 credit score rather than the 675 credit score. This could significantly change which loan programs you qualify for as 615 is rather low for most loan programs.

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Going Beyond the Credit Score

While credit scores are important, don’t let yourself give up on getting a mortgage if you have a low credit score or if your co-borrower has a low score. Lenders look at the big picture. Let’s say you have a credit score on the lower end, but you have other compensating factors. A lender may be willing to cut you some slack on the credit score because of it. Some of the most common compensating factors are as follows:

  • Low debt ratio – The ideal debt ratios are 28% on the front end and 36% on the back end. This meets the conventional loan guidelines and is seen as the ‘ideal’ debt ratio.
  • High down payment – If you put more than the minimum required down payment on a home, lenders often tend to give you some wiggle room on other qualifying factors. The more money you invest in the home, the less money the lender has to give you. This also gives you more reason to make your mortgage payments on time so that you don’t lose your large investment.
  • Stable income – Lenders like consistency. If you have income that steadily increases over the most recent few years, it can work to your advantage. Lenders like income that is stable and reliable. They want to know that you’ll be able to pay your mortgage for the foreseeable future.

Getting Around a Low Credit Score

If you are buying a home with someone else and their credit score is ruining your chances, you may want to apply for the loan on your own. The only time this wouldn’t work is if the co-borrower has high income that you need to qualify for the loan. Consider finding a home that will require a loan amount that you can handle and qualify for on your own.

Even if it’s an FHA loan or an ARM loan that you wouldn’t normally consider, you can always refinance in the future. You can take the loan that you qualify for on your own now and then have your co-borrower work on his/her credit. When his/her credit is better, you can then apply for a refinance together. With the combined income, you may be able to qualify for a conventional loan or any other loan with better terms and no mortgage insurance like the FHA will charge.

Your credit scores are among one of the first things lenders look at when qualifying you for a loan. Do what you can to maximize your credit score so that you are in a good position to get the loan that you want.

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