One of the most impactful shifts is the removal of the minimum credit score requirement for conventional loans.
Similarly, Freddie Mac has already moved away from strict minimum scores through its Loan Product Advisor. The Loan Product Advisor is an automated underwriting system that enables consideration of credit histories that might otherwise be excluded under older models. Both Freddie Mae and Freddie Mac have updated their websites to reflect the assessment change.
Due to the updates, lenders may consider alternative credit information and other risk factors. Other factors for consideration include income stability, debt-to-income ratio, and a positive payment history. This approach will, hopefully, allow applicants to prove their creditworthiness beyond loan repayment data and credit cards. This will reveal a more complete picture of a borrower’s creditworthiness beyond traditional credit card and loan repayment data.
The removal of a minimum credit score requirement could especially benefit first-time homebuyers, younger borrowers, and people with “thin” credit files. While credit scores themselves will still be reviewed, the expanded evaluation criteria may allow more applicants who previously fell short of rigid cutoffs to qualify.
Mortgage lenders and underwriters will still evaluate applicants on the strength of their financial profiles, and individual lenders may set their own internal score requirements. Individual lender requirements may differ from the Fannie Mae and Freddie Mac guidelines. Higher scores typically still translate into more favorable interest rates and loan terms.
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Source: Black Enterprise
