Conventional Loan 101 For New Loan Officers: Mortgage Training
This Article On Conventional Loan 101 For New Loan Officers Was Written By Gustan Cho NMLS 873293
I like to congratulate to those who recently took the NMLS Exam And Passed it. Now the fun part of becoming a loan officer starts. The NMLS exam is a tough 3 hour 125 question national test where the only way you can pass this test is by studying hundreds of hours and going over few thousand multiple choice practice exams. I have guided hundreds of new loan officer recruits who came to me for advice about taking and passing the NMLS test and starting a new career as a licensed mortgage loan originator.
Here Is A Recap On Becoming A New Loan Officer
- Becoming a mortgage loan officer is a process.
- You cannot decide to become a mortgage loan originator one day and try to get a job the next day and start originating loans.
- Although there are tons of useful information on the NMLS exam, what is on the exam does not train you to go out and start originating loans.
- Training a new loan officer takes time and it is like training a lawyer.
- Just because you graduated from law school and passed your bar exam does not mean that you are ready to practice law.
- You are licensed to practice law, however, a new lawyer needs training trying cases and going over many case studies.
- Same with a loan officer.
- There are so many rules and regulations and various different types of mortgage loan programs that it is almost impossible to learn everything overnight.
- It takes time, patience, and a lot of training by a senior loan officer to be the best loan officer.
- Even veteran loan officers do not know everything and need to consult with others when they run into a special type of case scenario.
- As a loan officer, your borrowers will depend on you for the best advice on which mortgage loan program for you to recommend.
- There are two different types of residential owner occupant mortgage loan programs.
- Government backed loans which are FHA Loans, VA Loans, USDA Loans and private conforming loans which are called Conventional Loans where there is no government guarantee.
- There are times where a borrower does not qualify for a FHA Loan where they may qualify for a Conventional Loan and vice versa where the borrower will qualify for a FHA Loan but not a Conventional Loan.
Conventional Loans Explained
Conventional Loan 101 For New Loan Officers
- Fannie Mae and Freddie Mac are the two mortgage giants that set mortgage lending guidelines on Conventional Loans.
- Mortgage lenders need to follow Fannie Mae and/or Freddie Mac mortgage lending guidelines if they intend on funding Conventional Loans to borrowers and resell the loans to Fannie/Freddie.
- Once Lenders fund Conventional Loans and if they intend on selling it to Fannie or Freddie, these loans needs to conform to Fannie Mae and/or Freddie Mac Guidelines and if they do not, Fannie and Freddie will not purchase.
- Mortgage lenders use their warehouse lines of credit to fund borrower’s loans and once they fund them, they turn around and resell them and replenish the warehouse lines of credit they used to fund the loan.
- In order for Fannie Mae or Freddie Mac to purchase the conventional loan a lender funds, the mortgage lender needs to make sure that the way the mortgage loan has been structured conforms to Fannie Mae and/or Freddie Mac mortgage lending guidelines.
- This is why Conventional Loans are also called Conforming Loans because they need to conform to Fannie Mae and/or Freddie Mac conforming standards.
Conventional Loan 101 For New Loan Officers: Private Mortgage Insurance Explained
Private Mortgage Insurance is required on all Conventional Loans with less than 20% equity and/or 80% Loan To Value
- Government Loans are guaranteed by the government in the event if the borrower defaults on their mortgage loan and it goes into foreclosure. Lenders have the mentality where the borrower needs to have skin in the game in order to minimize their risk level.
- That is why it is no rocket science that the more of a down payment a home buyer puts down on a home purchase, the less risk the lender has and the lower the mortgage rate the borrower will get.
- This does not apply for government loans. With FHA Loans, VA Loans, USDA Loans, whether the borrower puts down 3.5% or zero percent down on VA Loans or USDA Loans, or they put 50% down payment, there is no bearing on the mortgage rates because the government loan is guaranteed by the government.
- This does not apply with Conventional Loans.
- With Conventional Loans, the more the borrower puts down as a down payment, the lower the interest rate.
- Any borrower who puts down less than 20% down payment on a Conventional Loan home purchase is required to have private mortgage insurance .
- The function of private mortgage insurance, also referred to as PMI, is in the event if the borrower defaults on their conventional loan, the private mortgage insurance company will cover part of the loss of the foreclosure to the lender.
- It is similar to the government guaranteeing FHA Loans, VA Loans, and USDA Loans.
- Private mortgage insurance can be canceled if the borrower reaches a 80% loan to value either by paying down the mortgage balance or by the home appreciating in value and the value increase being justified and verified through a home appraisal.
Conventional Loan Requirements
Fannie Mae and/or Freddie Mac sets the Conventional Loan Requirements.
Here are the basic Conventional Loan Requirements
- Minimum credit score of 620
- Fannie Mae does not allow for non-occupant co-borrowers but Freddie Mac will allow for non-occupant co-borrowers
- 5% down payment on home purchase. 3% down payment on home purchase is available for first time home buyers
- 45% debt to income ratio caps
- 4 year waiting period after Chapter 7 Bankruptcy and 2 year waiting period after Chapter 13 Bankruptcy to qualify for Conventional Loan
- 4 year waiting period to qualify for Conventional Loan after deed in lieu of foreclosure and/or short sale
- 7 year waiting period to qualify for Conventional Loan after foreclosure
Mortgage Part Of Bankruptcy
Conventional Loan 101 For New Loan Officers: Mortgage Part Of Bankruptcy
- There are many times when a borrower cannot qualify for a FHA Loan but will qualify for a Conventional Loan and hopefully this article Conventional Loan 101 For New Loan Officers will explain strategies in helping you as loan officers use creative ways of making the pre-approval process as smooth as possible.
- With Conventional Loans, if you had a mortgage as part of your Chapter 7 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 and the foreclosure can be recorded at a later date.
- This is a huge benefit for folks who had a foreclosure as part of their Chapter 7 Bankruptcy where the foreclosure did not get recorded until years later.
- With FHA Loans, there is a three year mandatory waiting period to qualify for a FHA Loan from the recorded date of the foreclosure and the discharged date of the bankruptcy does not matter.
- There are millions of people who had a foreclosure as part of their Chapter 7 Bankruptcy and their foreclosures did not get recorded until years after their discharged date of their bankruptcy and still cannot qualify for a FHA Loan but will qualify for a Conventional Loan.
This BLOG on Conventional Loan 101 For New Loan Officers was written by Gustan Cho NMLS 873293 of The Gustan Cho Team at CrossCountry Mortgage Inc. NMLS 3029. CrossCountry Mortgage NMLS 3029 is five star national lender licensed in 50 states known for not having any lender overlays and can be proud of its 100% closing ratios on getting pre-approvals closed. The staff at The Gustan Cho Team at CrossCountry Mortgage is licensed is available 7 days a week, evenings, weekends, holidays. You can call Gustan Cho at 262-878-1965 or text Gustan Cho on his cell for faster response at 262-716-8151.