Fannie Mae and Freddie Mac Remove the 620 Credit-Score Floor

For years, conventional conforming loan underwriting through Fannie Mae and Freddie Mac have used a "hard" minimum credit score threshold, typically around 620 for most scenarios. But in recent updates both have announced "minimum credit score requirements will no longer apply to loans submitted to DU/ or LP"

What the Guide says

Some key points directly from Fannie and Freddie's Selling Guide:

• General Requirements for Credit Scores, states that lenders must request credit scores for each borrower when ordering the credit report.
• "DU and LP will rely on its own comprehensive analysis … No minimum credit score requirement."
• What does that mean? Nobody knows! But we will find out through trial and error!

What this means in practice

• Lenders using DU and LP now have flexibility to consider borrowers whose credit scores are below the previously-required 620. (That said: "flexibility" does not mean "automatic approval regardless of score.")
• The risk-assessment engines will evaluate credit history, debt, income, assets, payment patterns, and more! They will no longer reject loans solely because they fall below a numeric threshold.
• Important: Even though the hard floor is removed, pricing, risk factors, and lender overlays still will apply. A low score may mean higher rates, with the need for stronger compensating factors, or a larger down payment.

What's now possible

• Buyers who were previously excluded simply because their score was under 620 may now be considered for a conforming or conforming High balance loan.
• It means you can present conventional financing as a possibility even when the buyer's FICO (or equivalent credit score) is lower than 620, which is a big shift.
• It opens the door to greater flexibility in down payment and structuring for "non-perfect" credit profiles, potentially reducing reliance on government-backed programs (though those remain powerful options).

Important caveats

• Removing a numeric floor doesn’t equate to "no credit score required." The credit score (or its absence) must be explained and underwritten, and it may still impact pricing or approval.
• If a score is very low (e.g., < 500) or there are significant derogatory items (bankruptcy, foreclosure, many late payments), approval will still require strong compensating factors (a large down payment, strong reserves, stable income, an excellent recent payment history).
• Rates and costs will likely be higher for borrowers with low credit. Even though the 620 floor is gone, the risk pricing remains.
• Lender overlays remain in place: even though the minimum score is gone. Individual lenders may still require higher scores or stronger profiles.
• For many borrowers with low credit, an Federal Housing Administration (FHA) loan may still be the better fit, even if conventional is now "available."

Based on what we're seeing and the conversations with underwriting channels, here's a model that may work well for agents and clients:

• Score: Low credit score (let's say under 620) but no mortgage late payments (0 - 1 recent late, ideally none).
• Down Payment: Larger down payment - 20% or more, even up to 40% for the strongest case. A 40% down payment, in particular, will keep the rate better as there are minimal loan level price adjustments to loans with 40% down.
• No major recent derogatory events: No recent bankruptcy or foreclosure, or if there was one, it has been appropriately re-established and documented.
• Strong payment history going forward: Even with past issues, if the most recent 12-24 months look clean, that improves the story.
• Borrower needs to be otherwise solid: Stable income, acceptable debt-to-income ratio, reserves, etc. Don't expect a 49.9% Debt ratio with a 550 credit score and 10% down to work!
• Consider PMI and rate impact: If down payment is < 20%, buyer will have PMI (private mortgage insurance) and likely a higher rate. With low credit scores, that gap could be meaningful.
• Compare FHA vs. Conventional: If the down payment or credit profile is better suited to FHA, it may still be the win. But if the buyer can put down a large equity stake (20-40%) and has a decent ongoing payment history, conventional financing through Fannie or Freddie may become the preferred path.

Final Word for Agents

The removal of the hard 620 minimum is a noteworthy change that brings more flexibility to the marketplace and gives buyers with imperfect credit a broader toolkit. But it doesn’t mean "all low-scores qualify automatically." As a lender, our role is to advise, structure, and compare options so the buyer makes the best choice.

If you have clients with credit scores below the "traditional 620 barrier with a solid down payment," this is a great moment to revisit their eligibility, build their case, and present a well-documented strategy.

Please let me know if you have any questions or if you or any of your clients, friends, or family members need my guidance. I’m just a call, text, or email away.

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

📞 Office: 661-260-2970 ext. 2222 – Text OK

📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

Rates are better today than yesterday, but up for the week and up a little more for the month. Economic news is starting to hit

Loan Programs

• We do loans on Non-warrantable condos!
• We offer 12-day escrows for pre-approved buyers, including conventional, FHA/Jumbo/Bridge loans.
• We provide loans in all 50 states, so call me with anything you need.
• Government loans (FHA/VA/USDA) are in the 5s.
• Conventional loans up to $806,500 are in the high 5’s and low 6s.
• High-balance loans from $806,501 to $1,209,750 are also in the 6s.
• Jumbo loans above $1,209,750 are in the 6’s.
• ARMS in the 5’s and some in the 6’s
• Bank statement loans are available with 10% down again, with larger down payments in the 6’s++.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000.
• Private Money lenders offer Hard Money Loans with 35% down.
• No-Ratio Loans require a 30% down payment.
• DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
• Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
• 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:**   

Canyon Village HOA – removed last week!

**Bad News for Condos***     

Nothing New!

CONDO HELP!!!

If you have a listing or a buyer interested in a specific condo and are unsure whether it is warrantable or Non-warrantable, please call me, and we can look up Fannie’s list in real-time. We don’t know when something has changed, and it would be impossible to track everything day by day, but we don’t mind looking up a few items each day.

The full state of California’s naughty list has been added to: MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

📞 Office: 661-260-2970 ext. 2222 – Text OK

📧 Email: Mike@AugustaFinancial.com

Have a great day and an even better tomorrow! Please call me when you have a client who needs to borrow!