Very few Americans have a perfect credit score of 850. And experts say you only need a 760 FICO score to qualify for the best rates on credit cards, auto loans and mortgages. Since Congress passed the $2 trillion coronavirus stimulus package, 4 million Americans (and that number is still climbing) have requested mortgage forbearance in response to the economic fallout of the pandemic. But despite the concerns, the real estate market is still hot. Today, lenders are much more concerned about your income than your credit score given that so many people are now unemployed.
Your Income May Be More Important Than Your Credit Score
In the wake of the coronavirus pandemic, lending has dramatically changed over the past few months. On the home lending side, investors are pulling back on jumbo loans (for mortgages over $548,250 and $822,375 in high-cost areas) and non-qualified mortgages for borrowers with variable income (like self-employment, lump-sum incomes, fluctuating freelance incomes, etc.) But for more conventional borrowers who still have a consistent source of income, there are still viable options available.
Many lenders are still lending to borrowers with 620 scores, as long as the borrower has proof of sufficient income. A 620 FICO score falls in the fair/average range according to both the FICO and other industry standard credit scoring models.
Bear in mind that a good or excellent credit score will qualify you for better interest rates and terms, but mortgage lenders can work with a lower score as long as your income checks out. It also helps if you have a down payment of at least 20%.
However, your ability to show proof of stable income has become even more essential. The down side for mortgage lenders is layoffs and furloughs. Throughout the mortgage application process, your employment must be re-verified several times. And if you’re laid off at the same time you’re applying for a mortgage, you may have to wait and apply again, no matter how good your credit score is.
But while employment is non-negotiable right now, you can still probably get a mortgage with a fair or average credit score. To qualify for the best mortgage interest rates, however, you’ll want to work on improving your credit score as much as you can and save for a sizable down payment.
Contact one of our loan consultants to learn more.