Credit Grades

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Did you ever wonder what the different grades meant? The following is a breakdown of the Mortgage Industry's general grading system. There is not an exact definition of these grades, but in general, this is how the industry defines credit levels.

Credit scoring will place borrowers in one of Five general categories.

 

  • First, a borrower with a score 720 and above may be considered a Prime or "A+" loan. The loan will involve basic underwriting, probably through a "computerized automated underwriting" system and be completed within minutes. Borrowers falling into this category may have a good chance to obtain a lower rate of interest and close their loan within a couple of days.  No lates in the past two years.

  • First, a borrower with a score below 720 but above 680 and above may be considered an "A" loan. The loan will involve normal underwriting, probably through a "computerized automated underwriting" system. Borrowers falling into this category will have slightly higher rates than if their score was above 720.

  • Third, a score below 680 but above 620 may indicate underwriters will take a closer look at the file in determining potential risks as a "B" loan. Borrowers falling into this category may find the process and underwriting time no different than in the past. Supplemental credit documentation and letters of explanation may be required before an underwriting decision is made. Loans within this FICO scoring range may allow borrowers to obtain "A" pricing, but loan closing may still take several days or weeks to close.

  • Fourth, borrowers with a score below 620 may find themselves with rates a bit higher than the best loan rates and terms offered. In fact you may have to use alternate funding sources other than Fannie Mae (FNMA) and Freddie Mac (FHLMC) loans. For example, FHA Programs are available to scores of 580 at good rates with a low down payment.  This are considered "C" Borrowers.

  • Fifth, "D" Borrowers are considered "hard equity" borrowers. Loan decisions made for these borrowers are made on property values and the ratios are normally under 65%. Rates are high on these products as the risk of foreclosure is high. Many of these borrowers are steps away from losing their home.