Mortgage Lending Requirements

Mortgage Lending Requirements On Government And Conforming Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Mortgage Lending Requirements On Government And Conforming Loans Was UPDATED And PUBLISHED On June 29th, 2020

Mortgage Lending Requirements is what lenders follow to see if a mortgage loan applicant qualifies for a residential mortgage loan.

  • There are two types of lending guidelines
  • There are mortgage lending requirements that are set by the specific agency guidelines of FHA, VA, USDA, Fannie Mae, and Freddie Mac
  • There are also mortgage lending requirements that are set by the individual lenders called lender overlays
  • Just because borrowers meet the federal minimum mortgage lending requirements does not mean they will meet the minimum guidelines set by the mortgage company borrowers choose

Each individual mortgage company can have its own set of mortgage lending requirements which are called lender overlays.

Agency Guidelines Versus Lender Overlays

What are the requirements for mortgage loans for government loans and for granting loans for the intended purpose

Overlays by lenders may be higher than the minimum requirements set by FHA, VA, USDA, Freddie Mac, and Fannie Mae:

  • Borrowers who do not qualify by a particular lender due to the lending guidelines need to ask the lender why they do not qualify
  • Is it because of the federal guidelines or is it because of the lender overlays? 
  • We will be covering just FHA and Conventional guidelines on this article
  • We will cover USDA Lending Guidelines on a separate blog article

In this article, we will discuss and cover Mortgage Lending Requirements On Government And Conforming Loans.

HUD Mortgage Guidelines On FHA Loans

Minimum FHA Mortgage Lending Requirements require a minimum of 580 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 with credit scores of 620 or higher to get an approve/eligible per automated underwriting system approval
  • Borrowers do not have to pay off old collection accounts to qualify for an FHA Loan

Medical collection accounts and charge off accounts do not count and are exempt.

Collection Accounts

What are debt collection accounts

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
  • It is a hypothetical debt used to calculate the borrower’s debt to income ratios
  • This is done unless a written payment agreement has been made with the creditor
  • Written payment agreement 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.

VA Mortgage Lending Requirements

The United States Department of Veterans Affairs (VA) does not mandate any minimum credit score requirements.

  • VA also does not have any debt to income ratio caps
  • All minimum credit score requirements and debt to income ratio guidelines are set by each individual mortgage lender and not the VA
  • Gustan Cho Associates does not have any overlays on VA Loans
  • We just go off VA Guidelines

As long as borrowers can get an approve/eligible per automated underwriting system, we can close the loan as long as borrowers can meet conditions stated on AUS.

Conventional Mortgage Requirements

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

Minimum Conventional Lending Guidelines require a minimum credit score of 620.

  • 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?

Borrowers who got denied or are told they do not qualify for a mortgage loan due to mortgage lending requirements, find out whether they do not meet the federal guidelines or do not qualify due to overlays. Overlays are additional guidelines on top of the federal minimum lending guidelines. Borrowers do not meet the lending guidelines of the mortgage lender, then seek the services of a lender that does not have any overlays such as Gustan Cho Associates Mortgage Group.  Borrowers told they do not qualify due to overlays, please contact us at Gustan Cho Associatesat 800-900-8569 or text us for a faster response. Or email us at

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