What Are Mortgage Guidelines?

Mortgage guidelines are the rules and standards used to underwrite, approve, and fund a mortgage loan. Mortgage guidelines vary by mortgage loan type and lender, and change periodically.

A Longer Definition: Mortgage Guidelines

Mortgage guidelines are a lender’s mortgage approval checklist. They are rules which collectively define the minimum standards required to get a mortgage loan approved.

Mortgage guidelines are loan-type specific.

Broadly, conventional mortgage guidelines differ from FHA mortgage guidelines, which are different from VA mortgage guidelines and USDA Mortgage guidelines.

Furthermore, within each loan type, mortgage guidelines vary by program.

Fannie Mae’s HomeReady mortgage is for low-to-moderate income households and uses different underwriting criteria than its HomePath program, which helps home buyers buy foreclosed properties.

It is the same for the FHA, which uses different approval criteria for its 203k rehabilitation loan than its standard FHA mortgage.

Mortgage guidelines include rules for hundreds of traits, including:

• Credit Score
• Downpayment percentage
• Employment history
• Household income
• Citizenship

Guidelines also include rules for property type, zoning, and the relationship between buyer and seller.

To mortgage lenders, mortgage guidelines are a checklist. When a home buyer satisfies all checklist items, the mortgage is approved.

Frequently Asked Questions About Mortgage Guidelines

Who makes mortgage guidelines?

Mortgage guidelines can come from government agencies like Fannie Mae or Freddie Mac, or from individual lenders for specific loan products.

How often do mortgage guidelines change?

Mortgage guidelines are fluid, based on changes in the economy, changes in law, and adjustments in mortgage risk strategy. In some years, guidelines will change dozens of times. In other years, they’ll change only a few times. Agencies and lenders rarely change mortgage guidelines without advance notice.

Why do some lenders not honor official mortgage guidelines?

Mortgage lenders reserve the right to impose additional standards on top of official mortgage guidelines. When lenders add additional standards, the guidelines are known as investor overlays. The most common investor overlay is an increase in a program’s minimum required credit score.

What happens if I can’t meet all the mortgage guidelines?

Mortgage guidelines are the minimum standards banks apply to approve and fund your mortgage. If you don’t meet a bank’s mortgage guidelines, consider applying for a different mortgage loan or with a different mortgage lender.

How do I get an exception to the mortgage guidelines?

Mortgage lenders sometimes consider exceptions from buyers on specific mortgage guidelines when the buyer can present a reasonable, common-sense explanation. Exceptions are rare, and should be requested and approved in writing.

Additional Resources on Mortgage Guidelines

Related terms:

• Lender Overlay
• Mortgage Pre-Approval
• Credit Score