The nation’s largest mortgage lender just got rid of its minimum credit score requirement on most home loans.
The move is effective immediately and applies to conventional loans backed by Fannie Mae and Freddie Mac, as well as FHA, VA, and USDA loans.
Instead of relying upon a hard credit score floor, such as a 620 FICO score, eligibility will be determined by the automated underwriting system (AUS).
The company is essentially removing an overlay it had in place above and beyond what agency guidelines required.
Why they’re doing it now is somewhat curious given loan volume has recently taken a dive.
Credit History Still Matters, But You No Longer Need a Specific Credit Score
First things first. This isn’t 2008 all over again. We aren’t going back to no doc underwriting and ninja loans.
Instead, United Wholesale Mortgage (UWM), like other lenders before them, is throwing out the minimum credit score requirement.
My understanding was that they used to require a minimum credit score of 620 for Fannie Mae and Freddie Mac approvals (conforming loans).
And a 580-credit score for both FHA loans and VA loans. Now they’ll apparently go as low as what AUS allows.
So if your loan file is run through Desktop Underwriter or Loan Product Advisor and gets an approve/eligible, or accept/eligible, it doesn’t matter what your credit score is.
It could be a 550-score depending on other attributes of the loan.
For the record, you’ll likely need compensating factors if you have poor credit history.
That means things like a larger down payment, or a low debt-to-income ratio (DTI), the good stuff that offsets the bad.
So before anyone gets too excited here, your credit history still matters. It’s just not as rigid as it was prior.
And for the record, this move simply aligns with the guidelines of Fannie and Freddie implemented last year.
Prior to this change, UWM had imposed a lender overlay where they required more than the minimum requirement to qualify for a mortgage.
Which bring up an interesting point; why now? Perhaps loan volume is getting low and they want to expand their offerings?
Or they’re just aligning with other top lenders and can’t not do it being one of the largest in the nation.
Credit Scores Still Affect Mortgage Rate Pricing
UWM will still rely on credits scores for mortgage rate pricing, which means loan-level price adjustments (LLPAs) aren’t going away.
So if your score is low, you’ll still pay more for the loan and/or get stuck with a higher interest rate.
However, you won’t be automatically denied because of a certain number like you were in the past.
That’s the key distinction here.
UWM CEO Mat Ishbia said the company’s own research found that credit scores aren’t the “strongest predictor of a borrower’s ability to qualify,” and that the AUS gives a more complete picture.
While minimum scores are going away on Fannie, Freddie, and FHA/VA/USDA, they will remain in place for jumbo loans, bank statement loans, and investor loans.
Good News for Homeowners with Marginal Credit But Strong Financial Profiles
For borrowers with lower credit scores, this could turn a denial into an approval, assuming the rest of the loan file looks good.
And because UWM works exclusively through mortgage brokers, those brokers now have a bit more room to say yes.
It also makes sense from a business standpoint. With mortgage rates now closer to 7.5% and loan applications sputtering, lenders are fighting over a smaller pool of borrowers.
By effectively widening who qualifies, it’s another way for UWM (NYSE: UWMC) to go after more of them.
However, it’s unclear how many borrowers will fall into this category of low credit but otherwise healthy finances, job stability, etc.
This is also a good reminder to shop around as some lenders have stricter requirements than others and you may be told you don’t qualify when in fact you might elsewhere.
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