2016 Conventional Loan Requirements Explained
What Are The 2016 Conventional Loan Requirements
There are new 2016 Conventional Loan Requirements that went into effect. Fannie Mae and Freddie Mac are the two mortgage giants in the United States that sets up Conventional Loan Requirements. Conventional Loans are not insured by any government entity like FHA Loans is insured by the United States Department of Housing and Urban Development or HUD, VA Loans are insured by the United States Department of Veteran Affairs or VA, and USDA Loans are insured by United States Department of Agriculture Rural Development. FHA Loans, VA Loans, and USDA Loans are called government loans because they are insured by the government in the event if the borrower defaults on their home loans. Government loans require little to no down payment and offer low mortgage rates because the risk is limited to the mortgage lender. FHA, VA, and USDA does not originate nor fund government loans. Private banks and mortgage companies originate and fund FHA Loans, VA Loans, USDA Loans. FHA, VA, USDA insures these loans to private banks and mortgage companies that follow their lending guidelines in the event if the borrower defaults on their mortgage loans and the file goes into foreclosure. Upfront and annual mortgage insurance premiums are required on FHA Loans and USDA Loans. VA Loans require an upfront VA Funding Fee, however, there is no annual mortgage insurance premium with VA Loans. You cannot get second home financing or investment home financing with government loans. Only owner occupant properties are allowed with FHA Loans, VA Loans, and USDA Loans. Fannie Mae and Freddie Mac does not insure mortgage loans and purchase Conventional Loans originated and funded by Conventional mortgage lenders that meet Fannie Mae and Freddie Mac mortgage lending guidelines. Conventional Loans are called Conforming Loans because they need to conform to Fannie Mae and/or Freddie Mac mortgage lending standards in order for Fannie Mae and/or Freddie Mac to be able to purchase them. There are no upfront mortgage insurance premium required on Conventional Loans, however, private mortgage insurance is required for all Conventional mortgage loans with greater than 80% loan to value but once you get private mortgage insurance on a Conventional Loan, you are not committed to have private mortgage insurance for the life of the Conventional Loan. Private mortgage insurance on Conventional Loans can be canceled once you have 20% or more home equity in your home. A home appraisal will be required to justify the value of the property in order to determine the loan to value. Since Conventional Loans are not guaranteed by the government against default by the mortgage borrower, Conventional mortgage rates do have a great impact on the borrower’s credit scores and the amount of down payment the home buyer puts down or loan to value. The higher the credit scores and the lower the loan to value, the better mortgage rates the Conventional mortgage borrowers will get.
2016 Conventional Loan Requirements: Credit Scores And Debt To Income Ratio Requirements
Minimum credit score requirements to qualify for a Conventional Loan, the mortgage borrower needs a 620 FICO credit score. FHA Loans require a minimum 580 FICO credit score to qualify for a 3.5% down payment FHA home purchase mortgage loan. Fannie Mae and Freddie Mac require a 5% down payment from a home buyer in order to qualify for a Conventional Loan. Fannie Mae will allow 3% down payment from home buyers for Conventional Loans and Freddie Mac will allow 3% down payment for home buyers who have had no ownership on a home loan for the past three years. Conventional Loans have a maximum debt to income ratio limit of 45% DTI where FHA Loans limits the back end debt to income ratios to a maximum of 56.9% DTI as long as the FHA borrower has at least a 620 credit score. Any credit scores under 620 credit scores, the debt to income ratios gets reduced to 43% DTI.
2016 Conventional Loan Requirements: Second Home Financing And Investment Home Financing
Government Loans do not allow second home financing nor investment home financing. FHA Loans, VA Loans, and USDA Loans is for owner occupant properties only. Home buyers looking for second home financing or investment home financing need to go with a Conventional Loan. 10% down payment is required for second home financing and with investment homes, it depends on the type of property the real estate investor is buying.
Single family homes that are investment homes require 15% down payment. 2 to 4 unit properties that are investment properties require more down payments as well as reserves.
2016 Conventional Loan Requirements: Waiting Period After Bankruptcy And Foreclosure
Conventional mortgage loan borrowers can qualify for a Conventional Loan after a bankruptcy and foreclosure. 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 deed in lieu of foreclosure and/or short sale. There is a seven year waiting period to qualify for a Conventional Loan after a foreclosure.
If you had a mortgage part of bankruptcy , there is a four year waiting period to qualify for a Conventional Loan from the discharged date of your Chapter 7 Bankruptcy discharged date. Your foreclosure can be transferred out of your name after the discharged date of your Chapter 7 Bankruptcy discharged date and that has nothing to do with the waiting period requirements on Conventional Loans. The 4 year waiting period clock starts from the discharged date of the Chapter 7 Bankruptcy.