What Are Mortgage Lending Guidelines?

Mortgage Lending Guidelines is what mortgage lenders follow to see if a mortgage loan applicant qualifies for a residential mortgage loan.  There are two types of lending guidelines. You have lending guidelines that are set by the specific mortgage loan programs by FHA, VA, USDA, Fannie Mae, and Freddie Mac and you have the lending guidelines that is set by the individual mortgage lenders called mortgage lender overlays.  Just because you meet the federal minimum mortgage lending guidelines does not mean that you will meet the minimum lending guidelines set by the mortgage company you choose.  Each individual mortgage company can have their own set of mortgage lending guidelines which are called lender overlays that may be higher than the minimum lending guidelines set by FHA, VA, USDA, Freddie Mac, and Fannie Mae.  If you do not qualify from a particular mortgage lender due to the lending guidelines, you need to ask the mortgage lender why you do not qualify.  Is it because of the federal mortgage guidelines or is it because of the mortgage lender’s mortgage lender overlays?  We will be covering just FHA and Conventional lending guidelines on this article and will cover VA Loans and USDA Lending Guidelines on a separate blog article.

FHA Mortgage Lending Guidelines

Minimum FHA Lending Guidelines require a minimum of 580 FICO credit score to qualify for a 3.5% down payment FHA Loan.  Maximum debt to income ratios are 56.9% back end and 46.9% front end debt to income ratios if you have credit scores of 620 FICO or higher.  You do not have to pay off old collection accounts to qualify for a FHA Loan. Medical collection accounts and charge off accounts do not count and are exempt for FHA Loans.  Non-medical collection accounts that a borrower has of $2,000 or greater needs to be taken into account with calculating debt to income ratios. 5% of the unpaid non-medical collection account balance will be taken into consideration as a monthly expense and used to calculate the borrower’s debt to income ratios unless a written payment agreement has been made with the creditor where the monthly minimum payment agreement will be used in lieu of the 5% of the unpaid collection account balance. Again, medical collections and charge offs are exempt.

Conventional Mortgage Lending Guidelines

Minimum Conventional Lending Guidelines require a minimum credit score of 620 FICO.  Minimum down payment for first time home buyers is 3% down payment with Fannie Mae.  Freddie Mac will allow the 3% down payment conventional loan on a home purchase, however, the home buyer could not have owned a property in the past three years.  Otherwise, a 5% down payment is required one a home purchase.

What If A Mortgage Lender Denies My Loan Due To Mortgage Lending Guidelines?

If you get denied or are told you do not qualify for a mortgage loan due to mortgage lending guidelines, find out whether you do not meet the federal lending guidelines or you do not qualify do to the mortgage lender overlays which are additional guidelines on top of the federal minimum lending guidelines. If you do not meet the lending guidelines of the mortgage lender, then seek the services of a mortgage lender that does not have any mortgage lender overlays such as myself.  If you are told that you do not qualify due to mortgage lender overlays, please contact me at Gustan Cho Associates at 262-716-8151 or email me at gcho@gustancho.com.


The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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