What Are Mortgage Guidelines

What Are Mortgage Guidelines

Many mortgage borrowers ask the question ” What Are Mortgage Guidelines “.  There are two types of Mortgage Guidelines. The federal Mortgage Guidelines which are implemented by the various mortgage loan programs such as FHA, VA, USDA, Fannie Mae, and Freddie Mac which sets the minimum mortgage lending requirements for a mortgage borrower. Mortgage Loan Borrowers needs to meet the minimum mortgage lending guidelines of each particular mortgage loan program they apply for. Every loan program have different Mortgage Guidelines. There are Mortgage Guidelines with respect to minimum credit score, debt to income ratios, outstanding collection accounts, waiting periods after a prior bankruptcy and prior foreclosures, judgments, charge off accounts, late payments, tax liens, co-borrowers and non-occupant co-borrowers, manual underwriting, deferred student loans, seasoning requirements to refinance a home loan after a home purchase, cash out refinance loan to value limits, gaps in employment, part time and other income, bank statements, unreimbursed expenses, verification of rent, and other credit and financial factors of the mortgage loan borrower. For Example, FHA has mortgage lending guidelines where the minimum credit score required by a FHA mortgage borrower needs to be 580 FICO to qualify for a 3.5% down payment FHA home purchase loan. FHA allows for FHA borrowers with credit scores of under 580 FICO to qualify for a FHA Loan, however, FHA Mortgage Guidelines on borrowers who have credit scores under 580 FICO credit scores require that the home buyer put at least 10% down payment. Fannie Mae and Freddie Mac have their own Mortgage Guidelines. Minimum credit scores to qualify for a Conventional Loan is 620 FICO credit scores.  FHA Loans and Conventional Loans are the two most popular mortgage loan programs so we will discuss Mortgage Guidelines on FHA and Conventional Loans on this article.

The second type of Mortgage Guidelines are called mortgage lender overlays which are mortgage lending guidelines that are imposed by each individual mortgage lender on top of the federal minimum mortgage lending guidelines. For example, FHA only requires a 580 FICO Credit Score to qualify for a FHA home purchase mortgage loan with 3.5% down payment. However, most banks will not accept any FHA Borrowers who do not have at least a 640 FICO Credit Score. This is called a mortgage lender overlay on credit scores imposed by banks. Same with collection accounts. FHA does not require FHA borrower to pay off outstanding collection accounts and charge off accounts. However, many banks and mortgage companies will require that a FHA Borrower pay off all outstanding collection accounts and all charge offs in order for them to qualify for a FHA Loan with their mortgage lending institution. This is called a mortgage lender overlay on collection accounts. If you meet the minimum FHA or Conventional mortgage lending guidelines and need a mortgage lender with no mortgage lender overlays, contact me at 262-716-8151 or email me at gcho@gustancho.com. I specialize in FHA Loans, VA Loans, USDA Loans, and Conventional Loans with no lender overlays.

What Are Mortgage Guidelines: FHA Loans

FHA Loans are the most popular mortgage loan program in the United States. FHA is part of the United States Department of Housing and Urban Development, often known as HUD by many, and has one of the most lenient mortgage lending guidelines out of all mortgage loan programs. HUD sets FHA Lending Guidelines through it’s HUD 4000.1 FHA Handbook which is a comprehensive 800 plus pages of rules and regulations FHA approved mortgage lenders need to abide and adhere to in order for the FHA Loans they originate and fund to be insurable against borrower’s default. There are too many FHA Mortgage Guidelines to list on this article, however, here are the bullet points of FHA:

  1. Minimum Credit Scores 580 FICO to qualify for 3.5% down payment FHA Loan. Borrowers with credit scores of under 580 FICO can qualify for FHA Loan, however, 10% down payment is required. Minimum credit score required to qualify for FHA Loan is 500 FICO Credit Scores.
  2. Maximum debt to income ratios up to 56.9% DTI if credit scores are higher than 620 FICO. Debt to income ratios are below 43% DTI if borrower has credit scores of under 620 FICO.
  3. Outstanding collection accounts and charge off accounts do not have to be paid off in order to qualify for FHA Loan.
  4. Non-Occupant Co-Borrowers who are related to borrower by blood, marriage, or law are allowed to be added on the FHA Loan.
  5. 2 Year Waiting Period After Chapter 7 Bankruptcy Discharged Date To Qualify For FHA Loan. Those one year into Chapter 13 Bankruptcy can qualify for FHA Loan. No waiting period after Chapter 13 Bankruptcy discharged date. Three year waiting period after foreclosure, deed in lieu of foreclosure, and short sale to qualify for FHA Loan.
  6. Mortgage charge offs with balance reporting on credit report does not matter as long as it has been seasoned for at least three years. Charge off balance do not have to be paid off.
  7. One year waiting period after a loan modification to qualify for FHA Loan.
  8. 100% gifted funds are allowed for the down payment and up to 6% sellers concessions is allowed by the home seller to the home buyer.

What Are Mortgage Guidelines: Fannie Mae And Freddie Mac

Fannie Mae and Freddie Mac are the two mortgage giants in the United States that sets the standards and mortgage guidelines for conventional loans. Mortgage lenders need to follow Fannie Mae and Freddie Mac mortgage lending guidelines if they want to sell the conventional loans they originate and fund to the secondary market so they can relieve their warehouse lines of credit. There are too many Conventional Mortgage Guidelines to list on this article but here are the main Fannie Mae and Freddie Mac mortgage guidelines that most borrowers have questions:

  1. Fannie Mae requires minimum 3% down payment on home purchases for first time home buyers. Freddie Mac will allow 3% down payment for home buyers who have not had any ownership in a home for at least three years. Normally, 5% down payment is required on all Conventional Loans.
  2. Minimum credit score required to qualify for Conventional Loans is 620 FICO credit scores. With conventional loans, mortgage rates depends on credit scores and loan to value. The higher the credit score, the lower the mortgage rates. The lower the loan to value, the lower the mortgage rates. Conventional Loans are not insured by the government like FHA Loans are and any loan to value that is greater than 80% loan to value, private mortgage insurance is required. Private mortgage insurance premium will depend on the borrower’s credit scores, loan to value, and property type.
  3. There is a four year waiting period to qualify for a conventional loan after a Chapter 7 Bankruptcy discharged date. There is a two year waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date. There is a four year waiting period to qualify for a conventional loan after a short sale and/or deed in lieu of foreclosure. There is a 7 year waiting period to qualify for a conventional loan after a foreclosure.
  4. Mortgage part of Bankruptcy: If you have a mortgage part of bankruptcy, there is a four year waiting period to qualify for a conventional loan after the discharged date of the Chapter 7 Bankruptcy even if the recorded foreclosure date is recorded at a later date. This is not with FHA Loans. With FHA Loans, there is a three year mandatory waiting period to qualify for a FHA Loan from the recorded date of the foreclosure and the discharged date of the Chapter 7 Bankruptcy does not matter.

What Are Mortgage Guidelines: Mortgage Lender Overlays

Just because you meet the minimum FHA or Fannie Mae/Freddie Mac mortgage lending guidelines does not mean that all mortgage lenders will approve you for a home loan. Most mortgage lenders have mortgage guidelines of their own that surpass the minimum FHA and Conventional Loan Mortgage Guidelines which are called mortgage lender overlays . For example, FHA minimum credit score requirements to qualify for a FHA Loan is 580 FICO. However, most banks and many mortgage companies will not approve a FHA borrower who does not have at least a 640 FICO credit score. This is called mortgage lender overlays on credit scores. Same with debt to income ratios. FHA allows a maximum of 56.9% debt to income ratios for FHA borrowers with credit scores of at least 620 FICO or higher. However, most FHA approved mortgage lenders cap the debt to income ratios to 45% DTI or 50% DTI. Another common overlays is outstanding collection accounts. FHA does not require that outstanding unpaid collection accounts to be paid off. However, most banks and many mortgage companies will require that all outstanding unpaid collection accounts be paid off in full and some even require a two year seasoning after the collection accounts and charge off accounts have been paid off in order for them to approve a FHA borrower.

If you are looking for a mortgage loan officer that specializes in no lender overlays FHA and Conventional Loans, contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to take your calls or emails to answer any of your questions.

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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