The first item a loan originator will look at is the buyers’ credit report. The three major credit reporting agencies will each have a credit score (FICO) for the borrower; lenders use the middle number (midscore) to make their decisions regarding the loan application. Scores range from the 300’s to the 800’s.
Most lenders will only consider people who have a score of 620 or higher. A few will approve the loan with scores starting at 600, but be aware that with a 600 FICO score, the underwriter is going to have higher expectations of other elements of the borrower’s life – very high income, for example, or a lot of assets (a large retirement account, a lot of money in the bank). Also keep in mind that interest rates go down as credit scores go up. So the borrower who has an 800 midscore will get a lower interest rate.
The score isn’t the only factor an underwriter will consider. The borrowers may have accounts in collections or judgments against them. They may be required to pay off some of those debts before they can be approved for a mortgage.