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What Credit Scoring Model Do Mortgage Lenders Use
What credit score model do mortgage lenders use? Is VantageScore so much higher than FICO? Do Mortgage Lenders Check FICO or Vantage? For the majority of lending decisions do most lenders use your FICO score? And which type of FICO score? FICO 2, 4, 8?
How far off is VantageScore from FICO? What FICO or Vantage Score Model does FHA, VA, USDA, FANNIE MAE, FREDDIE MAC, and Non-QM mortgage loans use? What is a good FICO score to get a mortgage?
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This discussion was modified 2 months, 1 week ago by
Gustan.
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This discussion was modified 2 months, 1 week ago by
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6 Replies
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What Credit Score Model Do Mortgage Lenders Use?
Mortgage lenders will most often focus on the FICO score and use the FICO Mortgage Score models to address the loan applications as processed. However, VantageScore is not utilized by mortgage lenders when making lending decisions. The FICO score is regarded as the mortgage industry benchmark in this case, considering that it was established before VantageScore, reflecting the depth of borrower-assessed risk assessment in the mortgage industry.
Is VantageScore Higher Than FICO?
VantageScore and FICO are built using different models so that scores will vary, often to great extents. The VantageScore is relatively less harsh in some respects, for instance, treating medical collections or allowing shorter credit histories. Therefore, you will probably see that your VantageScore is better than your FICO score. However, this is not always true; the variances are based on each person’s credit profile.
Do Mortgage Providers use a FICO or VantageScore?
Mortgage lenders typically use FICO scores, while VantageScore credit scores are not used. This is because mortgage companies do not use VantageScore, but it is widely accepted in credit monitoring and other purposes, such as personal loans and credit cards. In fact, the FICO score models used by mortgage lenders are proprietary to the mortgage industry and incorporate more information about long-term financial viability.
What is the Fico Score Used By Mortgage Providers?
- Only a particular version of the FICO score is employed for mortgages.
- These are called FICO Mortgage Scores.
- They are not applicable in precisely the same way across all credit bureaus:
- There is a FICO Score 2 (Experian)
- FICO Score 4 (TransUnion)
- FICO Score 5 (Equifax).
These versions of the FICO score were created to predict the risk associated with the mortgage market. Therefore, they are much more risk averse than FICO 8 or FICO 9, employed in the personal loan or credit card industries.
The Comparison of VantageScore with FICO. How Far Off Is It?
- VantageScore can be miles apart from FICO.
- For instance, one might spot a slip of 30-50 on one of the scores above.
- Factors include your average age and the last credits or holidays you had.
- How VantageScore treats issues like collections or missed payments compared with FICO influences the exact variance.
- This difference leaves one stranded when checking the mortgage window if the only score available is the VantageScore.
Which FICO or VantageScore Models Are Used In FHA, VA, USDA, Fannie Mae, Freddie Mac, and Non-QM Loans?
- FHA, VA, and USDA loans have the same FICO models that normal mortgage lenders hold.
- FICO 2 (Experian).
- FICO 4 (TransUnion).
- FICO 5 (Equifax).
- In the same breath, Fannie Mae and Freddie Mac would use these respective FICO models in underwriting conventional loans.
- Unlike their name, non-QM loans (Non-Qualified Mortgages) also utilize normal practices and procedures regarding FICO mortgage scores.
- Still, some lenders often allow variation in the mortgage underwriting criteria.
What Is A Good Fico Score For Mortgage?
A good FICO score for a mortgage will depend on the loan type as follows:
- Conventional loans (Fannie Mae and Freddie Mac) mostly require a minimum credit score 620.
- However, those scoring 700 or above can get favorable rates and terms.
- FHA Loans: Allows a minimum FICO score of 500 with a 10% down payment.
- Or 580 with a 3.5% down payment.
- VA Loans: There is no official minimum FICO score for VA loans.
- 620 is a common number lenders usually require.
- USDA Loans: USDA loans do not require a minimum credit score.
- However, most lenders have overlays and will require a minimum FICO score of 620 and above.
Non-QM Loans: Non-QM lenders have more elasticity. The FICO score requirement is generally 620, down as low as 500 in the most vulnerable support.
Summary of Key Points:
- Mortgage lenders assess the FICO score.
- This includes FICO 2, 4, and 5 Scores per the credit bureau.
- Mortgages are never obtained with VantageScore.
- It is normally higher than FICO as the scoring methodologies vary.
- A credit score of 620 or higher in FICO is acceptable for conventional loans.
- However, there is more scope for lower scores for FHA and Non-QM loans.
FHA, VA, USDA, and conventional loan institutions use the FICO mortgage score models, not VantageScore.
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This is an interesting and revealing set of questions about credit reports and the role credit scores play in mortgage finance. Now, let’s analyze this in several ways:-
Credit Scoring Models Used by Mortgage Lenders
The majority of mortgage lenders utilize FICO scores instead of VantageScores.
Narrowing the strategies employed, they tend to employ earlier generations of Vantage score:
- FICO 2 (Experian).
- FICO 4 (TransUnion).
- FICO 5 (Equifax)
FICO and VantageScore
- VantageScore is rarely used to make mortgage lending decisions.
- FICO scores are usually lower than Vantage Scores, but this is sometimes true.
- This range of divergence is further extended when VantageScore is compared with FICO score across different credit profiles.
FICO Versions
However, while FICO 8 is the most common version for cards and other types of cards, as mentioned, I find mortgage lenders reverting to the older versions.
Particular Loan Programs and Score Models
- FHA, VA, USDA: Most government-assisted loans apply to the old FICO models.
- Fannie Mae and Freddie Mac: Again, use the old FICO models.
- Non-QM loans: This will depend upon the lender.
- However, many still utilize FICO scores, such as Fair Isaac Corporation.
What Is A Good FICO Score For Mortgages?
- A good standard to follow in assessing one’s eligibility for creditworthiness for mortgage loans is to consider a score of 620 or more as adequate for all conventional mortgages.
- 580 is usually the minimum credit score for FHA insurance loans with a 3.5 percent down payment percentage.
- More often than not, scores above 700 would be associated with more favorable interest rates.
- On average, most borrowers with scores of 740 and above will be offered the best rate.
FICO Scoring History:
- In this context, conforming loans must stick to these old versions for the mortgage market.
- This standardization assists in underwriting and secondary mortgage markets.
- While credit scores sit on top of a mountain of considerations, they are not the only thing that will get you a mortgage.
- Calculations such as the debt-to-income ratio, employment history, available assets, and many others come into play.
The appropriate department for obtaining a specific mortgage trust score with maximum commercial utility includes bankers and providers of targeted acumen ratings denoting accurate subtype. Most credit monitoring services cover VantageScores and more updated FICO scores because these are not the usual things mortgage lenders look at.
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Great question. I am getting conflicting answers on what credit scoring model lenders use?
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I asked @Michelle McCue and she will get you the answer, Danny. Michelle knows everything so I trust on her answer. Stand by.
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The FICO 8 model used by credit card companies is more critical of high balances on revolving credit lines. Since revolving credit is less of a factor when it comes to mortgages, the FICO 2, 4 and 5 models have proven to be reliable when evaluating candidates for a mortgage.
cnbc.com
Revolving credit vs. installment credit: What's the difference?
What's the difference between revolving credit and installment credit? While having both is important for a healthy credit score, one can be more harmful than the other.
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Thank you, Michelle. Greatly appreciate you.