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- New credit scoring model for mortgages could help more people buy homes</p>
<p>Claire BostonJuly 9, 2025 at 10:54 PM</p>
<p>The companies that buy up the majority of the country's home loans will now accept a second credit scoring model for mortgages, a change that could help underrepresented borrowers qualify for financing.</p>
<p>Fannie Mae and Freddie Mac, the two government-backed companies that support about 70% of the US mortgage market, will allow lenders to use VantageScore 4.0, a credit scoring alternative to FICO, Bill Pulte, the director of the Federal Housing Finance Agency, wrote in a post on X Tuesday.</p>
<p>The move is designed to end FICO's near-monopoly on credit scoring in mortgage underwriting, lower closing costs, and expand credit to borrowers whose payment histories aren't well captured by FICO.</p>
<p>Credit scores are a key factor in determining if a prospective homeowner qualifies for a mortgage, and what interest rate they'll pay. It usually takes a credit score of at least 620 to qualify for the most common type of loan, known as a conventional mortgage. It takes a significantly higher score, often a 750 or above, to receive the lowest interest rates.</p>
<p>For years, FICO was effectively the only company providing credit scores. To determine creditworthiness, it considers factors including payment history, amounts owed, and how long a borrower has had credit. Without a score and a previous borrowing history, it can be hard to gain access to credit, but it also takes access to credit to build a credit history, a classic chicken-and-egg conundrum.</p>
<p>VantageScore was created by the three major credit bureaus, Experian, Equifax, and TransUnion, in 2006 as an alternative to FICO. Its scores use the same 300 to 850 scale as FICO, and its latest model, VantageScore 4.0, is designed to more closely look at consumers with limited credit histories, in part by allowing rent and utility payments to factor into a credit file.</p>
<p>"My ORDER today (thanks to my boss, POTUS) will allow for Americans to use their RENT to qualify for a mortgage. Credit history will no longer just include credit cards and loans. This is HUGE," Pulte posted.</p>
<p>Rick Roque, vice president for growth at NFM Lending, said the move should help more members of traditionally underrepresented communities, like Black, Latino, and immigrant borrowers, build credit and ultimately qualify for loans.</p>
<p>"There are probably 30 million or more people that are considered underbanked," Roque said. "They get relegated to renting, so there's a whole aspect of equity, wealth, and real estate that isn't built up."</p>
<p>Still, the changes don't mean all previously shut-out borrowers will qualify for conventional mortgages overnight. Fannie and Freddie have strict underwriting standards, and borrowers will need to find a lender using VantageScore, score sufficiently high, and have the necessary income and assets to be approved.</p>
<p>VantageScore estimates that 5 million Americans stand to benefit from the changes.</p>
<p>The differences between the FICO and VantageScore models may give some borrowers who lack the FICO score for a conventional mortgage another avenue to qualify, or help them get a better interest rate, said Morgan Hardy, a mortgage loan officer at Foundation Mortgage in Knoxville, Tenn.</p>
<p>"If they're pulling 15 to 30 points higher, that's going to change some folks who were previously going to do an FHA loan," Hardy said. "Now it makes more sense for them to do conventional."</p>
<p>Hardy said he's "a pretty big proponent" of FHA loans, which are backed by the government and require lower credit scores and down payments to qualify compared with conventional offerings. But he acknowledges that some home sellers are reluctant to work with FHA borrowers because the loans can take longer close and come with strict appraisal requirements.</p>
<p>There's also hope that the new score competition will help lower credit report costs for borrowers and lenders, which have far outpaced inflation in recent years.</p>
<p>The most common type of credit report used for mortgage underwriting can cost over $140 today, up from $30 to $40 a few years ago, Roque said. Hardy has seen them go as high as $300. Ultimately, most buyers end up shouldering those costs when they close.</p>
<p>The Mortgage Bankers Association, a trade group, has said it's "deeply frustrated" by the price hikes, and the Consumer Financial Protection Bureau under former President Biden cited rising report costs as part of an investigation into "junk fees" in closings.</p>
<p>Pulte, meanwhile, said the Federal Housing Finance Agency will work to encourage lenders to adopt the new scoring model.</p>
<p>"We will be incentivizing lenders, who USE both Vantage 4.0 and FICO, with better pricing - anything to help the consumer," he posted on X.</p>
<p>Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.</p>
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