FICO Score Range and Qualifying Ratios

Examples of FICO Score Range

The borrower has a minimum decision credit score of 637. The co-borrower has a minimum decision credit score of 619. The minimum decision credit score of 619 must be used to determine the maximum ratios.

A single borrower has Credit Scores of 579, 601, and 589, from each of the three bureaus. The median score of 589 will be used and the borrower can qualify for a down-payment of 3.5%. Village Mortgage has vast experience in bringing this type of loan into reality.

Remember: FICO Scores affect Qualifying Ratios

Examples of Qualifying Ratio

The two ratios are as follows:

1) Mortgage Payment Expense to Effective Income

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners’ dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 31%.

See the following example:

Total amount of new house payment:            $750

Borrower’s gross monthly income (including spouse, if married):      $2850

 Divide total house payment by gross monthly income: $750/$2850

Debt to income ratio:   26.32%

2) Total Fixed Payment to Effective Income

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners’ dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 43%.

See the following example:

Total amount of new house payment: $750

 Total amount of monthly recurring debt: $400

Total amount of monthly debt:  $1,150

 Borrower’s gross monthly income (including spouse, if married): $2,850

 Divide total monthly debt by gross monthly income:  $1,150/$2850

Debt to income ratio:  40.35%

What is considered a Low credit score for a FHA home loan?

As mentioned above FHA requires a minimum FICO score of 530. Most of the Credit Unions and Banks consider a 530 FICO low credit score home loans well below their guidelines. At Village Mortgage, Inc we specialize in what other lenders consider a low credit score. We can accomedate loans as low as 580, and in certain circumstances , go as low as 530.

How does this credit score affect my ratio?

According to FHA quidelines if you have a FICO score lower than 620, then the qualifying ratios can not exceed 31% housing and 43% total expenses ( housing and all recurring monthly debt)

If your FICO score is 620 or higher ratios can exceed the normal 31/43 ratios. In some cases 40/55 ratio. As long as the Desktop Underwriter accepts the ratios.

What is Desktop Underwriting?

Desktop Underwriter® (DU®) helps lenders make informed credit decisions on conventional conforming, non-conforming, and government loans.  A computer-generated loan underwriting decision. Using completed loan application information, an automated underwriting systems retrieves relevant data, such as a borrower’s credit history, and arrives at a logic-based loan decision. Some applications may be referred to manual underwriting, and some inputs – such as income and assets – must be verified at a later date.

Your will either receive a Accept/Eligible , Refer/eligible or ineligible.

What is Manual underwriting or Refer/Eligible?

Basically the Desktop Underwriting system has reviewed your file and feels that you are on the border line of FHA guidelines. On of the most common thresholds are FICO scores lower than 620, outstanding Judgments or collections , monthly housing payment shock or no cash reserves.