This BLOG On Conforming Mortgage Lending Guidelines On Conventional Loans Was PUBLISHED On January 9th, 2019
Conventional Loans are often referred to as conforming loans.
- Reason is conventional loans needs to conform to Fannie Mae and/or Freddie Mac Conforming Mortgage Lending Guidelines
- Conventional Loans are not guaranteed by the federal government
- Then why do conventional loans need to conform to Fannie Mae and/or Freddie Mac?
Role Of Fannie Mae And Freddie Mac
As mentioned in the previous paragraph, Conventional Loans are not guaranteed by the federal government.
- However, all lenders make sure all conventional loans conform to Fannie Mae and/or Freddie Mac Guidelines
- Both Fannie Mae and Freddie Mac are considered government sponsored enterprises, also known as GSE
- Fannie Mae and/or Freddie Mac’s role is to purchase conforming loans originated and funded by private lenders
- By purchasing conventional loans, lenders relieve their warehouse mortgage line of credit
- By paying down their lines of credit, lenders can originate more and more conforming loans to new borrowers
- This process continues
Without selling their loans to Fannie and/or Freddie, lenders will have a liquidity problem and would run out of money. Hence, they could not fund any new loans.
Conforming Versus FHA Loan Limits
Homes are in demand which are driving home prices up.
- The Federal Housing Finance agency is the government regulatory agency that is in charge of both Fannie Mae and Freddie Mac
- Due to rapidly rising home prices, FHFA increases conforming loan limits for three years in a row
- Conforming Loan Limit for 2019 is capped at $484,350
- FHFA increased conforming loan limits to $484,350 from $453,100 due to rising home prices
- HUD followed in FHFA lead by increasing FHA Loan Limits from $294,515 to $314,827
There are many instances where borrowers need to go with conforming versus FHA Loans due to needing higher loan amounts.
Down Payment Conforming Mortgage Lending Guidelines Versus Other Loan Programs
VA and USDA Loans are the only loan programs that do not require down payment on home purchase and offers 100% financing.
- FHA Loans require 3.5% down payment for borrowers with at least 580 credit scores
- Home buyers with under 580 credit scores can qualify for FHA Loans with 10% down payment per HUD Guidelines
- VA, FHA, USDA Loans are for owner occupant properties only
- Conforming Mortgage Lending Guidelines allows for primary, second, and investment home financing
- Down payment conforming mortgage lending guidelines is dependent on the type of conventional loan borrowers are applying for
- Owner occupant homes require 5% down payment. 3% down payment is required by first time home buyers
- First time home buyers is defined as a home buyer with no ownership in a home for the past three years
Investment conforming loans require 15% to 30% down payment depending on whether it is a single family home and/or multi-family property.
Benefits Of Conforming Versus FHA Loans
There are instances where borrowers need to go with conventional versus FHA Loans.
- Borrowers with higher student loan balances need to go with conforming versus FHA Loans
- Conventional Loans allow Income Based Repayment. FHA does not
- HUD Guidelines require 1.0% of outstanding student loan balances to be used as a monthy hypothetical debt in DTI Calculations by underwriters
- Borrowers with over six figures in student loan balances can use a $50 per month IBR Payment
- Borrowers with a prior mortgage included in bankruptcy has a four year waiting period after discharged date to qualify for conventional loans
- Recorded date of foreclosure and/or short sale does not matter with conforming loans
- FHA requires three year waiting period after the recorded date of foreclosure and/or short sale date
Date of discharge of bankruptcy does not matter.
- Minimum credit score to qualify for conventional loans is 620 FICO
Mortgage Insurance Guidelines On Conforming Versus FHA Loans
FHA requires a one time upfront mortgage insurance premium of 1.75% PLUS an annual FHA MIP of 0.85% for the life of all 30 year fixed rate FHA Loans.
- Conventional Loans does not have any one time upfront mortgage insurance premium
- Any borrowers with less than 20% equity on conventional loans need to pay private mortgage insurance
However, PMI can be canceled once the borrowers equity reaches 20%.
- LPMI (lender paid mortgage insurance) is offered on conforming loans
- Loan officers can go over the benefits of Lender Paid Mortgage Insurance versus borrower paid MI
- Mortgage insurance is not required at 80% or less loan-to-value on conventional loans
Qualifying With Direct Lender With No Overlays
Borrowers needing to qualify for mortgage with direct lender with no overlays on government and conventional loans, please contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. The Gustan Cho Team at Loan Cabin Inc. is available 7 days a week, evenings, weekends, and holidays.