December 3, 2009

Minimum FICO Scores Are Increasing As DTI is Decreasing

Several lenders have announced the minimum FICO score for an FHA or VA loan is increasing to 640. They are also imposing an adjustment up to .375% to the rate if your qualifying FICO score is 660 or below. Does this mean you can't get a loan if your FICO is below 640? Not yet … there are lenders who accept lower credit scores but you can expect to pay a higher rate. Fannie’s minimum FICO is 620 but the price adjustments for scores between 620 and 719 will make your interest rate explode!

Along with minimum FICO scores increasing, the debt-to-income ratio (DTI) is decreasing. Fannie Mae announced that beginning December 12, 2009 their underwriting guidelines will be revised to max DTI at 45%. There can be exceptions for higher compensating factors. Your DTI ratio is calculated by taking the proposed housing costs (including property taxes, homeowners insurance and mortgage insurance if applicable) coupled with your minimum monthly payment on existing credit card and installment accounts compared to your gross monthly income. More reasons for you to get your credit scores and outstanding debts in order before applying for a mortgage.