Understanding the role of your credit score in residential lending A credit score can impact multiple areas of obtaining a loan. How much it affects the loan is changing constantly. Both the availability and cost of a loan are directly impacted by the determinant FICO score. Understanding how credit is measured and how to improve it can save thousands of dollars in financing.
FICO directly relates to the availability of financing. If a credit score is 1 point too low it can lock us out of a loan. Here are the thresholds:
- FHA loans require a minimum FICO score of 620 for most lenders and investors to be willing to do the loan
- Conventional loan ideal is 740 or higher, but can be done as low as 620. If a score is less than 660 we'll likely want to do an FHA loan or rescore the credit.
The cost associated with a loan can spike with credit below 740. If you compare 20% down at 740 FICO with 20% down at 695 FICO you will note a 1.5 increase in points charged by the lender. That is an extra $6,000 on a $400,000 loan!!
Understand FICO valuations I've included an attachement here that outlines what creates a FICO score. Please click here for the attachment.
Rapid Rescore Knowing how expensive an prohibitive lower credit can be, I have the ability to get a new FICO score within 5 business days. If we could improve a FICO from 715 to 720 it would save the borrower $2,000 on a $400,000 loan.