Buyers Don’t Need ‘Perfect’ Credit to Get a Loan

Buyers in don’t need a perfect credit score to get a loan in California. Having a high credit score can help buyers secure a loan with a lower interest rate. However, today’s loans have more forgiving guidelines when it comes to a buyer’s credit, which is especially true with government-funded loans.

Where Is The Credit Score to Get a Loan in California Pulled From?

Mortgage lenders pull the credit score to get a loan in California from the three major credit bureaus: Transunion, Equifax, and Experian. Lenders will correlate these individual scores and use the lower middle of the three scores for a buyer’s application.

Often, buyers who think that they have a high credit score are frustrated to see that the score their lender is using is lower than the score they’re used to seeing when they check their own credit. The consumer credit scores (provided for free by most credit card companies or companies like Credit Karma) are about 20 to 30 points higher than the score mortgage lenders pull.

Different industries use different scoring models, which is why a buyer’s score can vary. For example, there are different scoring models for consumer credit cards, mortgage loans, and car loans. Typically, consumer models have the least strict criteria while car loan models have some of the most stringent.

Average FICO Scores Among Homebuyers in California

Every month, Ellie Mae generates an “Origination Insight Report” that provides a detailed look at mortgage trends nationwide.

In July 2018, Ellie Mae reported the average FICO score distribution for purchases, refinances, conventional loans, and FHA loans. Ellie Mae found:

  • 70% of all closed loans had FICO scores over 700
  • 72% of all purchase loans had FICO scores over 700
  • 65% of all refinances had FICO scores over 700

As of July 2018, the average FICO score of all closed loans decreased one point from June’s report. The July average FICO score of all borrowers who had closed loans was 725.

FHA Loans and Lower Credit Scores

There are loan options that work for buyers who don’t have credit scores over 700. FHA financing is a great option for these buyers. In July 2018, Ellie Mae reported that the average credit score for FHA purchase loans was 676 with a loan-to-value (LTV) ratio average of 95.

In comparison to the closed conventional loans stats (751 credit score and 80 LTV), the FHA clearly is the option that works best for buyers who are just shy of a 700 credit score. FHA financing also gives buyers the opportunity to purchase with a higher LTV with their mortgage insurance program.

Consider the Big Picture

There are a lot of factors that play a role in qualifying a loan and whether that loan successfully closes. Lenders take into account the “big picture” of the buyer’s application; your credit score to get a loan in California is just one part that is examined. The best way to find out what buyers qualify for and what loan program is the best option for them is to talk to a lender in person.

You can contact us here, or at (925) 855-4491 or [email protected].

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