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When mortgage lenders have questions about underwriting, Iowa Bankers Mortgage Corporation’s Underwriting Help Desk is here to help. Following are the top three questions the Help Desk has received over the last few months.
When does Fannie Mae use the average median credit score?
The average median credit score is used to determine whether Fannie Mae’s minimum 620 credit score requirement has been met. This score is determined by using the middle of the three credit scores or the lower of two scores for each applicant, which is then averaged to determine if it meets the minimum required score of 620. This is an automated process by Desktop Underwriter during its comprehensive risk assessment.
The average median credit score calculation for purposes of determining eligibility does not apply to all loan types and/or loan programs. A minimum representative credit score of 620 is required for:
- Manually underwritten loans
- RefiNow loans
- Borrowers with multiple properties (see B2-2-03 of the Fannie Mae Selling Guide)
Government loans carry slightly different requirements. These types of loans do not allow the use of average median credit scores. Instead, the representative credit score of no less than 640 must be used.
Please note the representative credit score will continue to be used for pricing and delivery to Fannie Mae. Learn more or view examples.
Has the asset documentation requirements changed for refinances?
Fannie Mae no longer requires confirmation of assets when the funds required to be verified are $500 or less. If this is permitted, Desktop Underwriter will issue a message specifying assets do not need to be documented by the lender. Please note: this option does not apply to manually underwritten loans. Learn more.
What are the requirements for determining if a borrower is a displaced homemaker or a single parent under the First-Time Homebuyer definition?
Fannie Mae defines a First-Time Homebuyer as an individual who:
- Is purchasing the security property;
- Will reside in the security property as a primary residence; and
- Had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the security property.
Additionally, an individual who is a displaced homemaker or a single parent, is also considered a first-time homebuyer if he or she had no ownership interest in a principal residence (other than a joint interest with a spouse) during the preceding three-year time period.
Recently, a banker asked if a borrower with a pending divorce could be considered a first-time homebuyer. The borrower currently owned a home, but the spouse was being awarded the property in the divorce. The borrower wished to purchase a new home and put a down payment of only 3% on a conventional loan.
Could this borrower be considered a first-time homebuyer? The answer is yes! It is permissible as long as the loan meets all of the following criteria:
- The casefile must document that the borrower who held joint interest with a spouse is being required to move out of his or her home. Typically this is documented with a copy of the divorce decree.
- In order to be considered displaced, the borrower cannot be working outside the home.
- The borrower does not share joint custody of the children with the ex-spouse. A borrower who shares joint custody of minor dependents with an ex-spouse cannot be considered a single parent. However, Fannie Mae confirmed that if a borrower is a single parent to another child for which he or she has sole custody, then he or she would meet the definition of a single parent and could apply for 97% financing.
Have More Questions?
For answers to more underwriting questions, contact the Help Desk directly by emailing underwriting@ibmc.com.
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