How Lenders Look At Mortgage Approvals

November 06, 2020 by Dan Green

Mortgage guidelines are the official checklists lenders use to approve a request for a loan.

A loan’s guidelines include checkboxes for things like whether a person’s credit score meets minimum standards, whether their size of their loan size is within range of allowable sizes, and whether the applicant has verifiable sources of income.

Guidelines also include boxes related to your home — how many units is it, what kind of acreage does it have, and was it built before 1978, because homes from before that time used lead paint, which is poisonous.

The thing about mortgage guidelines, though, is that each lender uses its own, personalized version.

There are minimum checkbox standards set forth by the various government entities — the FHA, the VA, Fannie Mae and Freddie Mac, as examples — but each mortgage lender puts its own spin on these programs and what they will or won’t allow.

Even though the FHA says there’s no official credit score requirement to get FHA-approved, lenders will often use one anyway. Some set minimum scores at 660, some set them at 640, and others use a minimum FHA credit score of 580.

Same FHA loan, different credit score requirements.

The same is true for work history.

When you’re self-employed, some lenders want to see a 2-year history of income and others only care for the last 6 months.

These restrictions that lenders put in place are known as “investor overlays” and investor overlays are why it’s good to talk to two or more lenders about your loan.

That first lender might turn your loan down, but a different lender, using different investor overlays, might think your look looks great.

Are you a first time home buyer?

Let us know if you’ve done this before - whether you’re a seasoned pro or buying for the first time. We’ll share the perfect information with you as you need it.

More than 25,000 home buyers have customized their content

Sign up to customize yours

Already have an account? Log In