HUGE CONVENTIONAL LOAN UPDATE - easier mortgage approvals

Certified Mortgage Advisor
NMLS 1701021
September 23, 2021

COVID made it difficult

Getting mortgage, has it become more difficult since COVID mortgage credit availability has tanked as lenders tighten up guidelines and fear of the pandemic. And so if you've been frustrated by the tightened loan standards, you're not alone. Fannie Mae has a new role change that might help you qualify for conventional loan a lot easier.

New update about Fannie Mae

Fannie Mae conventional loans. Now allow two borrowers to average their credit scores to qualify for a loan, but it's a little complex. So here's how this works. Conventional loans have a minimum credit score of 620. So you won't even be considered for a conventional loan without at least a 620 FICO credit score.

Let's make a sample computation

So let's say two people are applying for a loan, Sally and John they're applying for a mortgage together. Sally has a 590 score, a 619 and a 648 credit score from TransUnion, Equifax, and Experian. So just a little side note, every single person has I shouldn't say every most people have three credit scores. And John has a 661, a 693 and another 693 mortgage lenders. Then we'll take the median or the middle score from each person. So Sally's middle score is 619 and John's middle score is a 693.

Little difference but still a big impact on September 2021

little difference can make a bit impact on September 18, 2021

So here's where the new change happens in where things get a little bit different. Fannie Mae conventional loans used to take the lowest between the two middle scores and use it on the loan to see if the 620 minimum credit score was met.

So in this case, 619 is too low for a conventional loan and Sally and John would be required to look at another type of loan, like an FHA loan or USDA loan, or a VA loan. So starting September 18th, 2021, Fannie Mae will now average the middle scores. So Sally's 619 and John's 693 will be average to 656. Which is more than high enough to qualify for a conventional loan. Not only is this new change going to average two borrowers credit scores, but also I'm in a video that shows how Fannie Mae is now counting on time rental payments towards a borrower's chance of getting a loan approval that you can watch as well to help you qualify and better for a conventional loan.

How and where to get a Fannie Mae Conventional loan?

And if you're asking yourself, how do I get a Fannie Mae conventional loan? Pretty much every lender works with Fannie Mae has access to these conventional loans with a minimum of 3% as a down payment. So if you'd like, you can check out this website if you'd like to talk with a loan officer who can help you get started.

This is just for two borrowers

Now it's important to keep in mind that this only works if there are two borrowers. Fannie Mae will not average one borrower's credit score to give you better chances of applying for a conventional loan, getting better interest rates, or better mortgage insurance. It's important to keep in mind, this is only used to see if the borrowers meet the credit score requirements of 620 and higher.

Fannie Mae said, "No, no, no!"

Fannie Mae has said it will not average the credit scores to offer better interest rates or cheaper mortgage insurance rates. Now, before someone comments, this is the 2008 housing crash all over again. Fannie may hasn't viewed credit scores as important in the risk assessment for loans for years. They use a much more complicated risk analysis than just this credit score to determine someone's ability to repay a loan.

So this isn't going to tank the housing market and cause a crazy spike in rates just because scores are being averaged instead of using the lower credit score. And really this change could save people tens of thousands of dollars, it actually puts people in a much more equitable position than before.

"Hooray!" for people who wants a conventional

So there will be a significant amount of people who will now be able to qualify for a conventional loan instead of an FHA loan that's usually expensive mortgage insurance with upfront and monthly as well. That combined with the fact that on-time rental history can be included, makes us a really solid change for conventional loans to provide more people access to this loan in a credit safe way.

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Only for educational usage. All calculations should be verified independently. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This is not an offer to lend and should not be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate and/or financial advice. Read the full disclaimer here.