How Fannie Mae’s New Credit Score Rule Affects You

Fannie Mae recently announced a major shift with a new credit score rule that will make it easier for co-borrowers from dual-income households to be eligible to buy or refinance their home. Here is a breakdown of the new change and how it can impact your dream of owning a home!

Old Credit Score Rule

In the past, Fannie Mae required lenders to use the lowest score of any co-borrower to meet their minimum credit score requirement of 620. So, for instance, if two co-borrowers had scores of 720 and 610, they were not eligible to buy or refinance a home together as one of the borrowers did not meet the minimum credit score requirement of 620.

New Credit Score Rule

Fannie Mae’s new credit score rule allows the lender to average the co-borrowers’ scores together to determine eligibility. Using the same example of two co-borrowers with credit scores of 720 and 610, the average credit score would become 665. This new score raises the co-borrowers’ average above the 620 minimum which now makes them eligible to buy a home or refinance.

Looking at this a little more broadly, lenders typically get 3 credit scores for each borrower. Under this new rule, they would use the average of the middle score (and not the lower or higher of the three scores) to determine eligibility.

How This New Rule Helps Co-Borrowers

This new credit score rule helps dual-income households in multiple ways. It is not uncommon for co-borrowers to have considerably different credit profiles. One borrower could have a high credit score while the other may have had some past challenges that lowered their score which made both co-borrowers ineligible. Consequently, the borrower with the higher credit score would attempt to qualify for the loan on a single income which could be more challenging.

With the new Fannie Mae rules, co-borrowers have a better chance for eligibility with their average credit score and both of their incomes can count towards a final approval for a home loan.

Fannie Mae’s recent announcement is a big deal for co-borrowers who wish to refinance or finally own a home. Check your eligibility by talking to one of our experience Loan Officers today!