What Are Mortgage Lending Guidelines?
There are two separate types of mortgage lending guidelines. First, there are federal mortgage lending guidelines set by FHA, VA, USDA, FANNIE MAE, FREDDIE MAC, and the second type of mortgage lending guidelines are mortgage lending guidelines set by the mortgage lender which is also known as mortgage lender overlays. Overlays are additional guidelines that are above and beyond the minimum federal mortgage lending guidelines set by the various mortgage loan programs such as FHA, VA, USDA, FANNIE MAE, FREDDIE MAC.
General Mortgage Lending Guidelines For FHA Loans
Basic mortgage lending guidelines for FHA loans are the following:
1. Minimum 580 FICO credit scores to qualify for 3.5% down payment home purchase FHA loan. However, if you have a 580 to 620 FICO score, rental verification may be required and a maximum of 43% debt to income ratios is allowed. If mortgage loan borrower has credit scores over 620 FICO, then the maximum debt to income ratios are capped at 46.9% front end, 56.9% back end. Credit scores between 530 FICO and 580 FICO require 10% down payment.
2. 2 year waiting period after a bankruptcy to qualify for a residential FHA mortgage loan. 3 year waiting period after a foreclosure, deed in lieu of foreclosure, or short sale.
3. One year waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale to qualify for a residential mortgage loan if the home buyer qualifies for the FHA BACK TO WORK EXTENUATING CIRCUMSTANCES DUE TO AN ECONOMIC EVENT mortgage loan program. To qualify, a home loan borrower needs to have been unemployed or underemployed for at least six months and due to the unemployment and/or underemployment the home loan borrower had to initiated a bankuptcy, foreclosure, deed in lieu of foreclosure, or short sale. The home loan borrower needs to have had no late payments and good credit prior to the economic event, had bad credit during the economic event, and had to have re-established his or her credit after the economic event. A HUD approved housing counseling class needs to have been completed and a certificate of completion signed and dated by the housing counselor needs to be in hand 30 days prior to the official mortgage application date.
4. Open collections allowed, however, 5% of the unpaid balance will be used towards debt to income calculations. This is for non-medical collection accounts. Collection accounts are exempt from this rule.
5. You cannot have an active credit dispute with an open balance account from a collection agency on a non medical collection account. Medical collection accounts are exempt.
6. Non-occupant co-borrowers are allowed from relatives and/or family members.
General Mortgage Lending Guidelines For Conventional Loans
1. Minimum credit scores for conventional loan programs are 620 FICO.
2. You can get a conventional loan with 20% down payment two years after a deed in lieu of foreclosure and short sale. 4 years with 10% down payment after a deed in lieu of foreclosure and short sale. 7 years with 5% down payment. There is a mandatory 4 year waiting period after a bankruptcy to qualify for a conventional mortgage loan. There is a mandatory 7 year waiting period after a foreclosure to qualify for a conventional loan.
3. Non-occupant co-borrowers are not allowed with conventional mortgage loan programs like they are allowed with FHA loan programs.