Conventional / FHA / VA Minimum Credit Score moves up to 620 and DTI 45%

Some of you may be surprised by this announcement with regard to the credit score, as it's been the policy for Home Team for quite sometime now. The DTI is a new piece however. I'll explain...

Fannie Mae provides all originators with a software piece called "Desktop Underwriter." You've heard me refer to "DU" as an "AUS" which is another cute acronym representing "Automated Underwriting System." Essentially what DU does is to receive all the details of a loan file from the originators "Loan Origination Software" or "LOS" and test all the information against every written Fannie Mae guideline. Did I mention it does this in seconds?

Although Home Team changed it's policy long before now regarding credit score, that change was based on our agreement with the investors who buy the loans we originate. Effective December 12th 2009, the Fannie Mae AUS known as DU will be updated to version 8.0. Version 8.0 is programmed to find loan files with credit scores below 620 as "ineligible" for delivery to Fannie Mae. This means Fannie Mae will not "buy" or pay any investors to service loans with a score below 620 and therefore no investor will buy such a loan.

DU 8.0 will also find, regardless of credit score, any loan file containing a "DTI" (Debt To Income) ratio greater than 45% ineligible for delivery. DTI is defined as the total of all debts plus the new PITI, divided by the total eligible income. DU will consider "very strong" compensating factors and may allow 50% DTI in such a case.

Analysis, lower DTI ratios are the big deal here. Almost no one is still doing scores under 620 and won’t be after 12/12. However, I have done a significant number of high DTI ratio loans this year with FHA. I've closed 3 loans this month that would not be approved if submitted after 12/12.

If you have buyers that have been pushing for higher home prices, we need to get them on contract and closed before 12/12.