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MLO Training Bootcamp: Credit Scores and Report
Good afternoon, folks. Gustan asked me to explain about Credit, Credit Scores, Credit Payment History, and The Importance of Credit when you are originating a loan. Credit is, hands down, one of the most, if not the most important factor when you are qualifying and pre-approving a mortgage loan applicant. There is no uniform credit score and credit history that is set on getting approved for a mortgage. Every mortgage loan program has its own credit score guidelines and requirements, as well as specific credit requirements.
For example, let’s go over some case scenarios:
- HUD, the parent of FHA loans, requires a minimum of a 580-credit score for a borrower to qualify for a 3.5% down payment home purchase FHA loan.
- Borrowers with credit scores under 580 and down to 500 FICO are eligible to qualify and get approved for an FHA loan.
- However, per HUD guidelines, anyone with credit scores under 580 credit scores require a 10% down payment vs a 3.5% down payment. Fannie Mae and Freddie Mac require a 620-credit score for borrowers on conventional loans.
- The Department of Veterans Affairs has no minimum credit score requirements on VA loans.
- However, most lenders have lender overlays (WE WILL COVER LENDER OVERLAYS ON A SEPARATE MODULE ON MLO TRAINING e-Learning Module).
- Lender overlays are mortgage requirements set by individual lenders that is above and beyond the minimum agency mortgage guidelines of HUD, VA, USDA, Fannie Mae, and Freddie Mac.
- Non-QM loans, jumbo loans, and alternative lending options are portfolio loans, and the minimum credit score requirements is created and set by its individual lenders.
How Is Credit Pulled by Mortgage Lenders and How is the Qualifying Credit Score for a Mortgage Determined Credit Scores Determine the Following: All mortgage lenders of government-backed and conventional loans pulls a tri-merger credit report. A tri-merger credit report is when a credit reporting service such as Credit Plus, Advantage Credit, or CIC pulls a credit report from Equifax, Transunion, and Experian simultaneously. Each credit bureau has its own credit score for the mortgage loan applicant. The lender is required to use the middle credit score as the qualifying credit score. Tri-merger credit reports and its credit scores are good for 120 days from the date it was initially pulled. If the mortgage process lasts longer than 120 days, the mortgage loan originator is required to re-pull a new tri-merger credit report because the initial tri-merger credit report is null and void. There are times where MLOs will re-pull a tri-merger credit report before the 120 day expiration date during the mortgage process if the MLO is confident the borrower’s credit scores has gone up. The reason they do a hard-inquiry tri-merger repull is because the MLO is hoping for a higher credit score where it benetits the borrower with a lower rate. This is normally done before the loan officer locks the mortgage rate.
- Credit scores determine whether or not borrowers qualify for a mortgage loan program
- Credit scores determine pricing on mortgage rates
- Credit scores determine pricing on private mortgage insurance on conventional loans
Credit Reports Determine the Following:
- The borrower’s credit payment history is stated on credit reports (current, 30, 60, 90, 120 days late).
- Derogatory credit tradelines such as late payments, accounts in collections, account that has been charged off, repossession, and other derogatory credit payment history and status.
Public Records:
- Any public records will appear on credit reports.
Example of Public Records Include the Following:
- Type of bankruptcy, housing event (foreclosure, deed-in-lieu of foreclosure, short-sale, forbearance)
- Judgments
- Tax lien
- Other public records
National Third-Party Public Records Search
- All mortgage lenders does a national third-party public records search during the mortgage process.
- Any public records that is not reflected on the consumer credit reports needs to get disclosed by the mortgage loan applicant because it will get discovered.
- Not disclosing it to the MLO and/or lender can cause delays in the mortgage process or can cause a last-minute mortgage loan denial.
The borrower’s personal and personal information is posted on credit reports.
The mortgage loan applicant’s full name, legal name, AKAs, DOB, current and previous addresses, current and previous employers.
The mortgage loan applicant’s full name, legal name, AKAs, DOB, current and previous addresses, current and previous employers.
List of Credit Tradelines
- which are creditors and includes type of credit such as auto, mortgage, installment account or revolving account
- date opened, payment history
- date of last activity
- amount borrowed and loan
- credit limit, balance
- late payment history, current standing
Credit Disputes on Derogatory Credit Tradelines
You will also find derogatory credit tradelines that is being dispute with the verbiage consumer disputes this credit tradeline. Credit disputes are not allowed on the following types of credit tradelines:
- Derogatory credit tradelines such as late payments
- Non-medical collection accounts
- Charged-off accounts
- Public records such as bankruptcy, foreclosure, deed-in-lieu of foreclosure, and short-sale
- Judgments
- Tax-liens
Credit Disputes are Allowed on the Following Types of Credit Tradelines
- Medical collection accounts
- The sum of all non-medical collection accounts with the aggregate outstanding balance that is less than $1,000 dollars.
- Non-medical collection accounts with zero balance, which means the non-medical collection account has been paid off.
- Non-medical collection accounts and credit tradelines has seasoned longer than 24 months (Be careful on this exemption and check with the underwriter of the wholesale lender because many lenders will still require you remove all credit disputes.
Why Credit Disputes Are Not Allowed By Mortgage Lenders
The main reason why credit disputes are not allowed during the mortgage process is because of the following:
- Whenever a consumer initiates a credit dispute on a derogatory credit tradelines, the algorithm on the credit scoring system of Experian, Equifax, and Transunion automatically discounts the disputed credit tradeline from its credit scoring model.
- What this means is that each of the three credit bureaus will discount and NOT count the derogatory credit tradeline from the consumer’s credit scores.
- Since the derogatory credit tradeline is not counted on the overall consumer credit score, the consumer credit scores will increase.
- Every credit dispute on derogatory credit tradelines will trigger a higher credit score.
- Therefore, under the lender’s point of view, a credit report with credit disputes renders an inaccurate credit score.
- On the flipside, if you do a credit dispute on medical collections and/or exempt credit tradelines, you can increase your credit scores and get away with it.
Bi-Merge vs. Tri-Merge Credit Report – Advantage Credit
advcredit.com
Bi-Merge vs. Tri-Merge Credit Report – Advantage Credit
Bi-Merge vs. Tri-Merge Credit Report – Advantage Credit
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