Why Credit Scores Will Continue to Play a Key Role in Mortgage Qualification

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Perhaps by now you have heard about the Equifax security breach, but you don’t know exactly what happened. We want to make sure that you are informed about what the Equifax data breach entailed so that you are armed with plenty of information to protect yourself and your credit.

As you surely know, it is very important to protect your personal information and credit score, especially if you are in the mortgage qualification process. There is nothing worse than having your credit damaged through no fault of your own. Continue reading to learn more.

mortgage credit score

The fact remains that credit scores are paramount to mortgage qualification in this market.

Overview of the Equifax Security Breach

In May 2017, nearly 11 million US driver’s licenses were stolen in a huge data breach at Equifax, one of the major credit bureaus used in the United States by creditors, including mortgage lending institutions. Customers who were affected provided their driver’s license information to confirm their identities when they disputed any information on their credit report. This page was one of the place that hackers used to get entry into the Equifax data system.

It would have been worse if the information that was stolen was social security numbers and bank information. But stolen driver’s license information does make it easier to engage in identity theft, which can be used to ruin someone’s credit.

For example, driver’s licenses typically include a person’s eye color, height and hair color. It would not be difficult for someone to use the person’s name, address and physical traits to use it as verification for another party’s identity or to do scams in that person’s name.

Thus, if you have verified your identity through the Equifax site at any time and used your driver’s license number, it is recommended that you get a new driver’s license in your state of residence. Better safe than sorry!

Why Your Credit Score Matters and Should Be Safeguarded

Your credit score is very important for getting qualified for a mortgage loan. Whether you get a conventional, FHA, VA, USDA or other type of loan, you will want to know what your credit score is and what is on your credit report. If your data was stolen in the Equifax data breach, it is possible that your credit score has suffered. This could be a real problem when it comes time for a mortgage approval.

So, the first thing is to check your credit report as soon as possible and see if you have any activity on your Equifax credit report that you do not recognize.

How much your credit score matters to get a home loan depends upon the type of loan you are getting. If you plan to get a conventional loan, it is important to have a credit score of at least 680, and a score over 700 is better. Conventional loans are the most common for people who have better credit and higher down payments. Many people who get conventional loans are previous home owners and are bringing substantial equity to the table to use for a down payment.

But many people cannot get conventional loans due to past credit problems. Others may not be able to get a conventional loan because they are a first-time home buyer and do not have a large down payment. In that case, an FHA lien backed by the Federal Housing Administration may be your best bet.

FHA financing is available to buyers who have quite low credit scores. That is why FHA is one of the most popular programs for first time home buyers. As of August 2017, the absolute minimum credit score to get approved for FHA loan is 500. To get a loan with just 3.5% down, you need to have only a 580-credit score. This is very achievable for most people. FHA recently reported in fact that 96% of applicants with a 580 score were approved. This is a full 60-point improvement from a few years back, when a 640-credit score was needed. It makes sense to speak with sources that have the ability to approve bad credit first time home loans.

Even though you can get a mortgage with a bad credit score, you still want to be certain that the Equifax data breach has not affected you. The reason is that even if you can get approved with a score in the 500s, there is no question that you will have an easier time getting approved with a higher score.

FHA sets the bare minimum at 500, and at 580 for 3.5% down payments. But the higher your score, the easier you will find getting approved. FHA-lenders have various credit score standards; many of them will have higher score requirements. The higher your score, the more lenders you will have to choose from.

If you are a military veteran or active duty, you may be considering a VA mortgage. The VA loan program is a great deal. You can get a 100% financing loan with a very low rate under conventional rates and no mortgage insurance. But you still want to be sure that your credit score has not been affected by the data breach. VA loans have flexible credit scores just as FHA programs do. But most lenders will require a 620-credit score, although the VA does not set a minimum credit score.

The Bottom Line on Credit Scores and Qualifying for a Mortgage

It is easier to be approved for a mortgage loan today than five years ago. As noted above, the minimum score for FHA loans – one of the easiest loans to get – has dropped by 60 points in the last several years. Many private lenders have introduced ‘stated income loans’ this year and credit is an essential component to being approved. Lenders are more flexible than they were right after the crash. But please be sure to check your Equifax credit report to be certain that your credit score has not been damaged. The higher your score, the easier it is to get a loan and the lower your rate will be.

References: Minimum FHA Credit Score Requirement Falls 60 Points. (2017, Aug. 8). Retrieved from https://themortgagereports.com/14466/fha-credit-score-minimum-approval-mortgage-rates

About Bryan Dornan

With over 20 years in the mortgage industry, Bryan Dornan has started several companies, such as the Lead Planet, Mortgage Lenders Plus and the Refi Guide. Mr. Dornan has written hundreds of finance related articles in an effort to promote home-ownership to consumers across the United States.