Nearly all lenders, whether conforming or subprime, use your FICO score to determine the loan-to-value that you can borrow to. For most lenders these guidelines are accross the board with the exception of a some niche lenders that may allow slightly higher loan-to-values.Many lender's guidelines considre credit scores in 20 point intervals. For example, a borrower with a credit score of 599 may have more LTV restrictions than a borrower with a 601, even though there are only 2 points difference. If your credit score is just a few points away from an even 20 point interval (such as 679, 638, or 599) be sure to ask your mortgage professional if the allowed loan to value ratio would be higher with a small score improvement. If the difference is significant you should consider reviewing your credit report and determine the best way to gain a few points on your credit score.
A FICO credit score below 500 will dramatically limit your ability to obtain a mortgage to purchase a home or refinance your existing home loan. The highest loan to value you might expect with a credit score under 500 would 65% before closing costs, meaning you can borrow $65,000 for every $100,000 of property value (the market value of your home).
Borrowers who have low credit scores but have quite a bit of equity can often qualify for Fannie Mae financing. This is due to automated underwriting standards allowing offsetting credit risks based on equity.
FHA will generally overlook fico scores if the overall credit profile justifies that the borrower has improved their financial habits. The most important factor in a FHA loan is mortgage history over the last 12 months.
For those individuals with less than perfect credit, non-conforming lenders allow loans up to sometimes 95% of their property's value.
Certain criteria must be met and these individuals should expect to pay slightly higher charges in closing costs and having a slightly higher note rate. It is also not uncommon for these non-conforming loans to have a pre-payment penalty.
Most lenders take your mid-score, or the middle score of the 3 scores reported by the bureaus. However, some lenders are willing to take the highest of the 3 scores, which sometimes can end up being the difference between a deal or no deal, or a deal and a good deal.
The common cut-off score for 100% financing is a 580 score. There are some programs that vary slightly from this number, and the programs are always changing, so this is not set in stone.
Another factor that is used with your FICO score to determine how much you can borrow (your LTV)is what type of documentation is being used. Full Doc means you are submitting W-2's and pay stubs, or tax returns if self employed, and you are documenting your assets with bank or brokerage statements. A Full Doc loan will allow for a higher LTV than a Stated Doc loan with the same FICO score.
Some lenders out there will even take an average of your 3 credit scores instead of using one particular credit score to determine how high of a LTV, loan to value, they will allow on a mortgage loan. For 2 borrowers they will even add up all 3 credit scores for each borrower together and then take an overall average to come up with one credit score that they will use to determine what mortgage parameters you will qualify for. Therefore, if one partner has poor credit but makes all or most of the money and the other has excellent credit but makes little to no money, by using a combined average for both borrowers it may help the borrowers to qualify for a better loan or a higher LTV. Ask your mortgage professional if you have any questions about how this works.
