ABC's of Mortgage Credit
The mortgage industry tends to create its own language and credit rating is no exception. BC Mortgage lending gets its name from the grading of one's credit based on such things such as payment history, amount of debt payments, bankruptcies, equity position, credit scores, etc.
We have compiled a guide to help you estimate your credit grade. This is only a guide as many companies have exceptions that may result in more strict or more lenient guidelines.
A General Guide to Credit Grades
| Mortgage | Revolving | Installment |
| Grade | Fico Score | Debt Ratio | Max LTV | 30 | 60 | 90 | 30 | 60 | 90 | 30 | 60 | 90 |
| A+ | 670 | 36 | 95 | 0 | 0 | 0 | 2 | 0 | 0 | 1 | 0 | 0 |
| A- | 660 | 45 | 1 | 0 | 0 | 3 | 1 | 0 | 2 | 0 | 0 | |
| B | 620 | 50 | 2 | 1 | 0 | 4 | 2 | 1 | 3 | 1 | 0 | |
| C | 580 | 55 | 4 | 2 | 1 | 6 | 5 | 2 | 5 | 4 | 1 | |
| D | 550 | 60 | 5 | 3 | 2 | 8 | 8 | 4 | 7 | 6 | 2 | |
| E | 520 | 65 | 6 | 4 | 3 | 10 | 10 | 6 | 10 | 8 | 3 | |
| F | below 520 |
Bankruptcy/Foreclosure A+ None Allowed Within 10 years A- Minimum 2 Years, Re-Established Credit B Minimum 2 Years, Some Lates C Minimum 1 Year D Discharged E Possible Current
Credit scoring will place borrowers in one of three general categories.
- First, a borrower with a score 680 and above may be considered an A+ loan. The loan will involve basic underwriting, probably through a "computerized automated underwriting" system and be completed within minutes. Borrowers falling into this category may have a good chance to obtain a lower rate of interest and close their loan within a couple of days.
- Second, a score below 680 but above 620 may indicate underwriters will take a closer look at the file in determining potential risks. Borrowers falling into this category may find the process and underwriting time no different than in the past. Supplemental credit documentation and letters of explanation may be required before an underwriting decision is made. Loans within this FICO scoring range may allow borrowers to obtain "A" pricing, but loan closing may still take several days or weeks as it does now.
- Third, borrowers with a score below 620 may find themselves locked out of the best loan rates and terms offered. Mortgage professionals may divert these borrowers to alternate funding sources other than FNMA and FHLMC. Borrowers may find the loan terms and conditions less attractive than the "A" loans, and it may take some time before a suitable funding source is located.
As more companies utilize credit scoring, the loan approval and closing time will be compressed for most consumers. In the future, a high FICO score may be your ticket to a speedy and competitively priced mortgage loan.
The figures shown here are estimates. When trying to figure your credit grade, keep in mind the following principles:
- Other Things Being Equal-When your have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision.
- Worst Case Scenario-When determining your grade, various combinations are allowed, but the worst case will push your grade to a lower credit guide. Mortgage Lates and Bankruptcies are the most important.
- Going Once, Going Twice-Credit patterns are very important. A high number of recent inquiries and more than a few outstanding loans may signal a problem. A "willingness to pay" is important, thus late payments in the same time period is better than random lates as they signal an effort to pay even after falling behind.
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