Benefits Of Using Conventional Loans Versus Government Mortgages

• Conventional loans are often referred to as conforming loans
• This is because conventional loans need to conform to Fannie Mae and/or Freddie Mac agency mortgage guidelines
• Conventional loans are not government loans
• They are not insured nor guaranteed by any government agency
• Conforming loans are private loans originated and funded by private lenders
• They why do they need to conform to Fannie Mae and/or Freddie Mac Agency Guidelines?
• This is because, in order for Fannie Mae and/or Freddie Mac to purchase these loans in the secondary mortgage markets, the conventional loans need to conform to their agency guidelines
• Otherwise, Fannie Mae and Freddie Mac will not purchase these home mortgages

Lenders use their warehouse line of credit to fund conventional loans.

How The Conventional Mortgage Process Works With Lenders

The minute the conventional loan if funded, they need to sell the loan on the secondary market so they can pay down their warehouse line of credit so they can reuse it to originate and fund more loans:

• However, if the conventional loans they fund do not conform, Fannie Mae and Freddie Mac will not purchase them
• There are many instances and Benefits Of Using Conventional Loans Versus Government Mortgages
• There are times where mortgage borrowers can qualify for a conventional loan but not a government loan
• The biggest competitor on conventional loans for first-time homebuyers is FHA loans
• Conventional loans allow for a second home and/or investment home financing
• All government loans are for owner-occupant primary homes only

Benefits Of Using Conventional Loans Versus Government Mortgages For First Time Homebuyers

First time home buyers can qualify for a conventional loan with a 3% down payment on a home purchase.

• FHA requires a 3.5% down payment
• Therefore, you need less money for the down payment on a conventional loan versus FHA home mortgage
• A first-time homebuyer is a buyer who did not have any ownership in a home in the past five years
• If the homebuyer is not a first-time homebuyer, then a 5% down payment is required on a home purchase with a conventional loan

For FHA loans, the down payment on a home purchase is 3.5% down payment regardless the buyer is a first-time homebuyer or not.

FHA Loans For Borrowers With Bad Credit

FHA loans are the best loan program for borrowers with lower credit scores and bad credit.

Here are the minimum HUD Agency Mortgage Guidelines on FHA Loans:

• The minimum credit score to qualify for a 3.5% down payment FHA loan is 580 FICO
• HUD minimum credit score requirements to qualify for an FHA loan is 500 FICO
• HUD requires a minimum 10% down payment for borrowers with under a 10%  down payment
• One to four-unit homes are eligible for FHA financing
• The maximum debt to income ratio cap on FHA loans to get an approve/eligible per automated underwriting system (AUS) is 46.9% front end and 56.9% back end
• There is a two-year waiting period after Chapter 7 Bankruptcy to qualify for an FHA loan
• There is a three-year waiting period after a foreclosure, a deed in lieu of foreclosure, short sale to qualify for FHA loans
• Borrowers in an active Chapter 13 repayment plan can qualify for an FHA loan during the repayment plan with Trustee approval and a manual underwrite
• There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for FHA loans
• If Chapter 13 Bankruptcy is not seasoned for two years after the discharged date, it needs to be a manual underwriting

Outstanding collections and charged-off accounts do not have to be paid to qualify for FHA loans.

Conventional Mortgage Guidelines On Primary Home Financing

The following mortgage guidelines apply to conventional loans on primary home financing:

• 3% down payment first-time homebuyer program for homebuyers who had no ownership in a home for the past three years
• Otherwise, a 5% down payment is required on owner-occupant primary home financing on conventional loans
• One to four-unit residentially zoned homes are eligible for owner-occupant primary home financing
• The minimum credit score required on conventional loans is 620 FICO
• There is a four-year waiting period after Chapter 7 bankruptcy, Chapter 13 bankruptcy dismissal, deed in lieu of foreclosure, or a short sale to qualify for conventional loans
• There is a two year waiting period after Chapter 13 Bankruptcy discharged date to qualify for conventional loans
• There is a seven year waiting period after a foreclosure to qualify for a conventional loan
• The maximum debt to income ratio cap on conventional loans is 50% DTI

Outstanding collections and charged-off accounts do not have to be paid to qualify for an owner-occupant primary conventional home mortgage.

Benefits Of Using Conventional Loans: Second Home And Investment Home Financing

One of the greatest benefits of using conventional loans is borrowers can finance second homes and investment properties. A 10% down payment is required for second home financing. Single-family homes that are investment properties require a 15% down payment. Two to four-unit multi-family investment homes require a 25% down payment.