Fannie Mae Says Two Credit Scores Are Better Than One

As Fannie Mae has continued to set new standards to make housing more affordable, a new rule regarding credit scores and co-borrowers will be taking effect next week on September 18th, 2021. The rule states that when looking at two borrower’s FICO scores, two co-borrowers can average out their median scores to meet Fannie Mae’s eligibility requirements.

That means that your median score out of the three scores you receive from Equifax, Experian, and TransUnion will be used to qualify you for a loan.

So, let’s say that one borrower has a 619 median FICO score (Fannie Mae’s minimum to qualify is 620), and another borrower has a 693. Both borrowers can combine their scores for a FICO average of 656—which qualifies both borrowers for a mortgage with flying colors.

Caveats to the New Credit Rule

While this rule will make housing more affordable, there’s a caveat: only one score is going to be used when it comes to pricing and mortgage insurance—and it’ll be the lower of the two. So rather than having an interest rate set using the 656 score, the score used to determine your interest rate will be 619. So, you’ll likely be charged a higher interest rate.

But is that really so bad when a slightly higher interest rate means that you qualify to buy a home? The moves being made across the mortgage industry all point to a new objective: making housing more affordable for a country that needs it. With the new rule in place, co-borrowers can help each other, rather than hurt each other’s chances of owning a home.

Why It Matters

About a third of US consumers have subprime credit scores. According to Experian subprime scores (to them) mean any credit scores under 670. While there was a decrease in subprime credit (from 34% of credit scores being subprime in 2020 to 30% in 2021), there are still many Americans who could use the home buying boost.

So imagine that your score is below 620, and that you’re struggling to raise your credit score to meet Fannie’s minimum requirements. Suddenly, you can now apply with a good credit co-borrower and get ready to start looking for a home.

So refresh those listings and start dialing your realtor—because a whole new world of possibilities has just opened up.

You can read Fannie Mae's official announcement here.