Conventional Loan Guidelines For Mortgage Borrowers
This BLOG On Conventional Loan Guidelines For Mortgage Borrowers Was PUBLISHED On April 15th, 2020
Borrowers who need Conventional Loans need to meet the minimum 2018 Conventional Loan Guidelines.
- Conventional Loans are also called Conforming Loans because they need to conform with Fannie Mae and/or Freddie Mac mortgage guidelines
- Fannie Mae and Freddie Mac are the two mortgage giants that set the requirements for Conventional Loans
- If a lender wants to sell their funded Conventional Loans to Fannie Mae or Freddie Mac, the loan needs to meet the minimum Conventional Loan Guidelines required by Fannie or Freddie
In this article, we will discuss and cover Conventional Loan Guidelines For Mortgage Borrowers.
Key Benefits On Conventional Loans
Here are some bullet points of Conventional Loans:
Conventional Loans can be used by borrowers needing financing of the following:
- Owner occupant homes
- Second-home financing
- Investment home properties
Conventional Loans need are also called conforming loans:
- Called Conforming Loans because they need to conform to Fannie Mae or Freddie Mac Conventional Loan Guidelines
- Conventional Loan Guidelines require that minimum down payment for first time home buyers is 3% down payment on a home purchase
- 5% down payment for non-first time home buyers
First Time Home Buyers is defined as a home buyer who had no interest in homeownership in past 3 years.
Rates And Terms On Conventional Loans
- Conventional Loans do not require private mortgage insurance (PMI) if borrowers put 20% down payment on a home purchase
- Private Mortgage Insurance can be canceled once the borrower’s equity in their home reaches 20% or 80% Loan To Value
- Borrowers with higher credit scores, private mortgage insurance is normally lower than FHA mortgage insurance premium
- Benefits of Conventional Loans is that private mortgage insurance is not permanent like FHA Loans
- Again, private mortgage insurance can be canceled once the Loan To Value reaches 80% LTV
Minimum credit scores to qualify for Conventional Loans is 620.
Qualification Requirements On Conventional Loans
Both Fannie Mae and Freddie Mac lowered the minimum down payment requirements to qualify for Conventional Loans to 3%.
- The 3% down payment on conventional loans are for first time home buyers
- In December 2014 in order to compete with the popular 3.5% down payment requirement on FHA Loans, the 3% down payment loan program was launched
- Due to this lowering of down payment requirements for first time home buyers on Conventional Loans, more and more borrowers were gearing towards Conventional Loans
Here Are The Benefits Of Conventional Loans:
- Conventional Loan Programs became a stronger competition to FHA Loan Programs
- Due to not just the lower down payment requirements of 3% down payment on a home purchase
- But also because of qualifying for Conventional Loan after Chapter 7 Bankruptcy when borrowers have mortgage part of bankruptcy
- We will discuss more in detail later on this article
Mortgage Insurance Guidelines
- FHA requires annual FHA mortgage insurance premium on FHA loans for the term of the FHA Loan
- Homeowners can cancel Private Mortgage Insurance on Conventional Loans once you are at 80% Loan To Value
- Private Mortgage Insurance is mandatory for borrowers who put less than 20% down payment on a home purchase
- Conventional Loans are very credit-sensitive
- Borrowers with lower credit scores will definitely get a negative pricing adjustment
- Mortgage interest rates will be higher since Conventional Loans are not government loans
Pricing on Private Mortgage Insurance is not fixed like FHA Loans
Private Mortgage Insurance On Conforming Loans
Private Mortgage Insurance is based on the following factors:
- Amount of equity
- Type of property
- Type of loan whether primary residence or investment property
- Most importantly, the borrower’s credit scores
Private Mortgage Insurance is based on risk
- Private Mortgage Insurance companies judge risk factor on the borrower’s credit scores
- The higher the borrower credit scores, the lower the risk factor, thus the lower the Private Mortgage Insurance Premium
MGIC, Genworth Financial, RMIC, and Radian are some name brand well known Private Mortgage Insurance companies.
2020 Conventional Loan Guidelines On Loan Limits
2020 Conventional Loan Guidelines on maximum Loan Limits are higher than FHA Loans.
- Due to Higher Loan Limits On Conventional Loan Guidelines, many FHA Borrowers need to qualify for Conventional Loans but need to meet the Conventional Loan Guidelines Requirements
Here are the 2018 Conventional Loan Guidelines On Loan Limits:
- Conventional Loan Limits on a single-family home is generally $510,400
- Loan Limits on Conventional Loans on two units is $653,550
- Conventional Loan Limits per 2020 on three-unit Conventional Loan Guidelines is capped at $789,950
- The maximum Conventional Loan Limit on four-unit properties is capped at $981,700
The above is for most areas in the United States.
Loan Limits In High-Cost Areas
There are many areas throughout the country that have areas that are designated high-cost areas.
High-Cost Areas have higher loan limits:
- High-cost areas have higher loan limits per 2020 Conventional Loan Guidelines
- For example, Los Angeles County and many counties in California have loan limits of up to $765,600 for single-family homes
Hawaii has higher housing costs and a four-unit property in Honolulu, Hawaii has loan limits up to $1.3 million.
Credit Score Requirements Per 2020 Conventional Loan Guidelines
Here are the credit score requirements to qualify for Conventional Loans:
- Minimum credit score requirements to qualify for a Conventional Loan is 620
- A 620 Credit Score is considered very low for conventional loans
- To get the best Conventional Mortgage Interest Rates, a borrower needs a 740 Credit Score
Loan Level Price Adjustments or LLPA is a pricing adjustment where the lower your credit scores are, there will be a pricing adjustment hit which means higher interest rates.
Debt To Income Ratio Requirements On Conventional Loans
Here are 2020 Conventional Loan Guidelines On Debt To Income Ratios:
- To get an approve/eligible per Automated Underwriting System via DU FINDINGS, debt to income ratios cannot exceed 50% DTI
To get an approve/eligible per Automated Underwriting System via LP FINDINGS, debt to income ratio cannot exceed 50% DTI.
2020 Conventional Loan Guidelines On Condominiums
Homebuyers purchasing a condominium need to consider the following:
- Condo Buyers can only qualify for a FHA Loan and want to purchase a condominium, they need to make sure that the condominium complex is FHA Approved
- Most condominium buyers think that just because the condominium is not FHA Approved that they can automatically qualify to purchase a condominium with a Conventional Loan
This is not the case and not true.
2020 Conforming Guidelines On Condominiums
Here are the 2020 Conventional Loan Guidelines On Condominiums:
- The common area of the condominium complex needs to be fully complete and owned by the condominium unit owners or the condominium homeowners association
- In order to qualify for a Fannie Mae and/or Freddie Mac condominium loan, the condominium complex needs to be classified as a warrantable condominium complex
- Warrantable condominium complex means that at least 51% of the condominium units needs be owned by primary resident condominium unit owners or second home unit owners and not be owned by investment unit owners where the condominium units are rentals
- The condominium complex needs to be in good financial condition with reserves and not negative or in financially in distress
- Ninety percent of the condominiums must be sold and owned by condominium unit owners on existing condominium projects
- A single enterprise and/or owner cannot be the owner of 10% or more of the condominium units
The condominium complex needs to be fully insured and/or insurable.
Second Home Financing & Investment Home Mortgages
Government loan programs such as FHA, VA, USDA only allow for primary owner occupant home financing. However, Fannie Mae and Freddie Mac allow for second-home and investment home financing with Conventional Loans.
Here are the requirements to finance second homes and investment properties with Conventional Loans:
- 10% down payment is required for second home financing with Conventional Loans
- 15% to 20% down payment is required for investment home financing with Conventional Loans
Multiple unit properties will require a larger down payment.
Conventional Loan Guidelines After Bankruptcy & Foreclosure
Here are the qualification requirements to qualify for Conventional Loans After Bankruptcy & Foreclosure:
- There is a four-year waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy or Chapter 11 Bankruptcy from the discharged date of the bankruptcy or dismissal date of their bankruptcy
- There is a two-year waiting period to qualify for a Conventional Loan two years from the discharged date of the Chapter 13 Bankruptcy or four years from the dismissal date of their Chapter 13 Bankruptcy
- If you have a mortgage part of your Chapter 7 Bankruptcy and if the mortgage is not reaffirmed, then there is a four-year waiting period to qualify for a Conventional Loan from the discharged date of the Chapter 7 Bankruptcy
- The foreclosure can happen after the discharged date and has no bearing on the four-year waiting period
- However, the foreclosure needs to happen and cannot be lingering in order for you to qualify
- There is a four-year waiting period to qualify for a Conventional Loan four years after the date of sale
- There is a four-year waiting period to qualify for a Conventional Loan after the recorded date of a deed in lieu of foreclosure
There is a seven-year waiting period to qualify for a Conventional Loan after a standard recorded date of foreclosure.
Qualifying For Conventional Loan With Lender With No Overlays
Gustan Cho Associates Mortgage Group has no overlays on Conventional Loans. Borrowers who have gotten a last-minute loan denial or are going through a stressful process and their current lender keeps on asking for conditions after conditions and are looking for a lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text for a faster response. Borrowers can also email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.