Homebuyers

Could It Get Easier to Buy a Home? Fannie Mae Eliminates Minimum Credit Scores

For years, many hopeful homebuyers had to have a credit score of at least 620 to secure certain popular mortgages. For buyers whose rating fell below that number, it meant their chances of qualifying for a Conventional loan shrank fast.

That hard line just softened. Fannie Mae, one of the two government-sponsored enterprises that support much of the mortgage market, is officially scrapping its minimum credit score requirement for borrowers whose loans run through Desktop Underwriter (DU), its automated underwriting system. This is a tool that lenders use to assess the credit risk of borrowers and if loans are eligible to be backed by Fannie Mae.

This change could be meaningful for homebuyers who have solid finances but a shakier credit history. It could also help homeowners hoping to refinance their loans. A step back from stringent credit score limits could give buyers facing affordability pressures and high home prices a bit more breathing room.

Freddie Mac made a similar move several years ago. Together, Fannie and Freddie support about 70% of the mortgage market, according to the National Association of Realtors.

Here’s what Fannie’s credit update actually means for homebuyers, who stands to benefit the most, and the homework buyers should start doing now.

Fannie Mae’s credit score change ushers in a new approach to lending

First, it’s important to know that neither Fannie Mae nor Freddie Mac originate mortgages themselves. These companies buy mortgages from lenders after they are originated, bundle loans together, securitize them, and then sell them on the secondary market. This allows lenders to make new mortgages and supports the continued operation of the housing market.

As part of their place in the housing ecosystem, both Fannie and Freddie provide software to lenders to aid in their mortgage underwriting and enable them to more easily sell a loan to one of the companies after it is closed.

This change in question affects Fannie Mae’s system and loans that will be sold to the company in the future.

As of Nov. 16, Fannie Mae’s DU automated system will no longer screen out borrowers based on them having a credit score below 620. In practical terms, that means Fannie Mae is shifting from a rigid credit minimum to a broader view of borrower risk that pulls data from the full loan application, not just solely from the credit report.

What does this mean? DU will now weigh a borrower’s overall financial profile, including income stability, debt levels, cash reserves, and their payment patterns. That fuller picture could help buyers whose credit took a hit from medical bills, a short gap in employment, or other events that dinged their overall credit.

“Fannie Mae removing their 620 minimum credit score will allow for a more precise buyer qualification than ever before,” said Justin Chau, a Realtor at exp Realty in California’s San Gabriel Valley. “By taking into account more factors than a single credit number, buyers who had their credit scores lowered because of certain situations such as divorce may now be able to qualify for a home.”

Homebuyers with limited credit may now be able to get a mortgage

One of the most consequential shifts is how DU will treat borrowers with little or no reported credit. Under the new rules, if DU identifies that a borrower has no traditional credit accounts, it will alert the lender to document a nontraditional credit history.

This can include proof of on-time rent, utility, phone, and insurance payments.

In some cases, DU may also require a homebuyer education course. This update helps formalize a process that lenders have handled inconsistently for years. That could provide an advantage for younger buyers and long-time renters.

The fine print in Fannie Mae’s credit change

While an ease in credit is welcome news to many, it is vital to note that the change to the DU is not an overall loosening of lending standards. Borrowers will still be closely vetted. The move should streamline decision-making, not rewrite it.

“It may just be a move of good intention and little impact,” said Anthony Ramirez, a loan consultant with New American Funding based in San Diego, Calif. He explained that Conventional loans are priced based on the overall risk of borrowers.

“Not only will the rate and pricing for the loan be affected by the lower FICO scores, so will the cost of mortgage insurance premium,” said Anthony Ramirez. “Those two combined costs can make it prohibitively expensive alternative [for borrowers] even though the access to capital is available.”

Translation: Lenders get more leeway in the type of credit information they can consider when approving a borrower. But the fundamental risk guardrails will stay intact.

What this Fannie Mae credit change means if you’re shopping for a home

For borrowers with established credit scores above 620, nothing changes. But for buyers whose scores sit below that line or who haven’t built up much credit history, this shift opens a potential path to homeownership that may not have existed before.

It also underscores the growing role of alternative credit in helping lenders assess a buyer’s financial reliability.

Still, DU’s expanded flexibility does not erase the financial fundamentals that put homebuyers in the best position to secure mortgages. Income stability, manageable debt, and savings for a down payment remain central to qualifying for a loan.

Those who want to take advantage of this change should start gathering documentation now. This includes records of rental payments, recurring bills, and bank statements.

“Buyers should also meet with local lending professionals to see if they could get pre-approved for a loan,” said Chau.

Anthony Ramirez NMLS # 249819