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Lenders Correlate to Borrower with Lowest Score No Matter What

A borrower with very low credit scores (in the 620s) explained to us yesterday that we do not need to worry about her low credit scores because she has “a co-signer with excellent credit.” This is a common misconception among borrowers – that co-signers or co-borrowers with excellent credit will somehow “offset” borrowers with weak credit.

Each of the three credit bureaus ascribes a credit score to every borrower, and lenders correlate to the middle of those three scores. If there is more than one borrower, lenders correlate to the lowest of the “middle scores”.

Hence, if a borrower has a 625 middle score, and a co-borrower or co-signer has a 800 middle score, interest rates, pricing, MI and LTV restrictions will all correlate to the 625 score.

Scores in the 800s are irrelevant unless that borrower has enough income to qualify on her own (in which case we take the 625 borrower off the loan, and just put him on title).

Scores affect rates significantly now days. For FHA, a 625 score vs. an 800 score will increase the rate by at least 3/8 percent. For Conventional, a 625 score vs. an 800 score will increase the rate by a much as 5/8 percent (depending on the LTV).

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646