Key Takeaways
- Borrowers may qualify with a 620 credit score for conventional loans.
- FHA loans require a minimum down payment of 3.5%.
- Pre-approval can speed up your home buying process significantly.
- VA loans often require no down payment, saving you money upfront.
Article Summary
Mortgage guidelines are the rules and standards used to underwrite, approve, and fund a mortgage loan.
Mortgage Guidelines: Explained in Plain English
Mortgage guidelines serve as a lender's approval checklist. They list the minimum standards required to approve a loan.
These guidelines vary by loan type.
For instance, conventional mortgage guidelines are different from FHA guidelines, which are also distinct from VA mortgage and USDA mortgage guidelines.
Additionally, within each loan type, programs may have different requirements.
Fannie Mae's HomeReady mortgage, for example, targets low-to-moderate income households and has different standards than its HomePath program, which supports buying foreclosed properties.
Similarly, FHA's 203k rehabilitation loan has different guidelines compared to a standard FHA mortgage.
Mortgage guidelines cover a wide range of criteria, including:
- Credit score
- Down payment percentage
- Employment history
- Household income
- Citizenship status
Guidelines also outline requirements for property type, zoning, and the relationship between buyer and seller.
To lenders, these guidelines function as a checklist. When all items are met, the loan is approved.
Frequently Asked Questions About Mortgage Guidelines
Get answers to frequently asked questions about mortgage guidelines, including who creates them, how often they change, and what to do if you don't meet the requirements.
Who makes mortgage guidelines?
Mortgage guidelines can be established by government agencies like Fannie Mae or Freddie Mac, or by individual lenders for specific loan programs.
How often do mortgage guidelines change?
Guidelines change based on economic conditions, legal requirements, and risk strategies. In some years, they may change frequently, while in others, updates are less common. Generally, agencies and lenders provide notice before making changes.
Why do some lenders not follow official mortgage guidelines?
Lenders may impose stricter standards than the official guidelines, called investor overlays. A common example is raising the minimum credit score required for a specific loan program.
What if I can't meet all the mortgage guidelines?
Mortgage guidelines set minimum standards for loan approval. If you can't meet a lender's guidelines, explore different loan options or apply with another lender.
How can I get an exception to the mortgage guidelines?
Lenders may consider exceptions to specific guidelines when the borrower provides a reasonable and common-sense explanation. Exceptions are rare and typically require formal approval in writing.
