Conforming Loan Requirements

Conforming Loan Requirements and Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers conforming loan requirements and guidelines on primary, second, and investment homes. Conforming loan requirements for 2023, for the most part, are the same as in 2022, with no major important changes. The last major change in conforming loan requirements was the two-year waiting period after a short sale and deed-in-lieu of foreclosure with a 20% down payment was no longer in effect.

For borrowers who have a mortgage part of bankruptcy, the waiting period is four years from the discharge date of the bankruptcy. The recorded date of the foreclosure, even if the foreclosure is recorded at a later date after the bankruptcy, does not matter.

The housing event (foreclosure, deed-in-lieu of foreclosure, short sale) needs to be finalized, but the age of the date does not matter. In this article, we will discuss and cover conforming loan requirements and guidelines on purchase and refinance transactions.

Down Payment Requirements on Conforming Loans

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All mortgage programs require a down payment except for VA and USDA loans. The 3% down payment for first-time home buyers is now available on conforming loans. Homebuyers can qualify for a conventional loan with a 3% down payment if they are first-time homebuyers. Per Fannie Mae and Freddie Mac Guidelines, a first-time homebuyer is someone who did not own a home for at least three years.

Credit Score Conforming Loan Requirements

The minimum credit score to qualify for conventional loans is 620. Conventional mortgage rates are priced on several factors. Here are the loan-level pricing adjustments on conforming loans:

  • credit scores
  • type of property
  • loan-to-value
  • debt-to-income ratio
  • loan amount
  • county and state of the subject property

To get the best conventional mortgage rates, borrowers need the following:

  • 740 credit score
  • 75% loan-to-value
  • The property needs to be a single-family home
  • Low debt-to-income ratio

The lower borrower’s credit score, the more lender views them as riskier borrowers. If lenders take on risks, mortgage rates will be higher. Borrowers with the bare minimum 620 credit score will most likely get the highest rates on conventional loans.

Conforming Loan After Short Sale and Deed-in-Lieu of Foreclosure

What is a compatible loan after a short sale and deed in LieuThe two-year waiting period after a short sale and deed-in-lieu of foreclosure with a 20% down payment to qualify for a conventional loan is no longer in effect. The new conforming loan requirements to qualify after a short sale and deed-in-lieu of foreclosure have been extended to 4 years. The recorded date of the deed-in-lieu of foreclosure needs to be four years. Four years from the short sale date, reflected in the HUD Settlement Statement with a 5% down payment.

Conforming Loan Requirements With Mortgage Part of Bankruptcy

For borrowers with a mortgage or mortgage as part of bankruptcy, the waiting period to qualify for a conventional loan is four years from the bankruptcy discharge date. Not the recorded date of foreclosure. Many homebuyers who had a mortgage part of bankruptcy can now qualify for a conventional loan four years from the discharge date of the Chapter 7 Bankruptcy. Do not worry about going by the recorded foreclosure date, deed in lieu, or short sale. Mortgages cannot be reaffirmed after bankruptcy. The housing Event needs to be finalized.

Waiting Period After Chapter 13 Bankruptcy

Conventional loan requirements after Chapter 13 Bankruptcy is a 2-year waiting period from the discharge date of Chapter 13 Bankruptcy. There is a four-year waiting period from the dismissal date of the Chapter 13 Bankruptcy to qualify for conforming loans. Some consumers file for Chapter 13 Bankruptcy, where they get the Chapter 13 Bankruptcy dismissed and do not complete the repayment program. Whether it was a voluntary dismissal or the Chapter 13 dismissal was due to non-payment, Fannie Mae and Freddie Mac require a four-year wait period after dismissal.

Conforming Loan Requirements After Foreclosure

Conventional loan requirements after a foreclosure are seven years from the recorded foreclosure date. Conforming loan requirements after a foreclosure differs from qualifying for a conventional loan after a deed-in-lieu of foreclosure or short sale.

With FHA loans, the waiting period to qualify for an FHA loan is three years after the recorded date of the foreclosure, deed-in-lieu of foreclosure, and the recorded date of their short sale, which is reflected on their HUD Settlement Statement.

The waiting period after bankruptcy is two years from the discharge date of the Chapter 7 Bankruptcy for an FHA loan. However, Fannie Mae and Freddie Mac have a longer waiting period after a foreclosure than they do after a deed-in-lieu of foreclosure or short sale.

Conforming Guidelines on Student Loans

One great advantage of conforming loan requirements on student loans is that Fannie Mae and Freddie Mac allow Income-Based Repayment (IBR) that reports on consumer credit reports to be used as monthly student loan debts. This is not the case with other loan programs. For example, if a physician with a $300,000 outstanding student loan balance and has an IBR Payment of $80 per month, that $80 per month IBR payment can be used as the monthly student loan debt on conventional loans. Borrowers who need to qualify for conforming loans with a lender with no overlays, please get in touch with us at Gustan Cho Associates Mortgage Group at 800-900-8569 or text us for a faster response. Borrowers can also email us their case scenario questions to gcho@gustancho.com. We are available evenings, weekends, and holidays seven days a week.

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