Types Of Conventional Loan Programs And Qualifying Requirements
This BLOG On Types Of Conventional Loan Programs And Qualifying Requirements Was UPDATED On August 24, 2017
Conventional Loan Programs need to conform to Fannie Mae and/or Freddie Mac Mortgage Guidelines.
- Conventional Loans are not insured by the government like FHA, VA, USDA Loans are.
- Conventional Loans are private loans originated and funded by banks and mortgage companies.
- However, in order for banks and private mortgage companies to be able to re-sell the conventional loans they originate to Fannie and/or Freddie, it needs to conform to Fannie Mae and/or Freddie Mac Guidelines.
- If they do not conform, Fannie and/or Freddie will not purchase the conventional loans.
- There are various types of conventional loan programs.
- Home Buyers who need second home loans or investment property loans cannot qualify with government loans.
- FHA, VA, USDA Loans are for owner occupied properties only.
- Conventional Loans offer second home financing as well as investment property loans.
Primary Residence Conventional Loan Programs
There are two types of minimum down payment mortgage conventional loan programs for owner occupant primary homes.
- The 5% down payment program and the 3% down payment conventional loan program.
- The 3% down payment conventional loan program are for first time home buyers or home buyers who did not own a home for the past three years.
- Fannie Mae allows the 3% down payment conventional home purchase loan program to first time home buyers only.
- Freddie Mac will allow home buyers who have not owned a property in the past three years to be eligible for the 3% down payment Conventional Loan Program.
- Sellers concessions are allowed for both the 3% down payment conventional loan program and the 5% down payment home purchase conventional loan programs.
- The maximum amount of sellers concessions allowed on primary and second home financing per Fannie Mae and Freddie Mac mortgage lending guidelines is 3% sellers concession.
- FHA and USDA allows 6% sellers concessions.
- VA Loans allow up to 4% sellers concessions.
3% Down Payment Conventional Loan Programs
Conventional Loans require private mortgage insurance premium for any homeowner who has higher than 80% Loan To Value. There are minimum down payment requirements on conventional loans.
To qualify for the 3% down payment conventional loan program, the mortgage loan borrower needs to have a minimum of 3% down payment seasoned for at least 60 days in their bank account.
- 3% down payment is for first time home buyers.
- First time home buyer are home buyers who did not have ownership on a property for the past three years.
- Gifts may be allowed by a family relative, depending on the lender.
- The donor needs to provide a gift letter stating that the down payment is not a loan and a gift that will not be paid back.
- Lender needs to see that the gift funds have been seasoned in the donor’s bank account for at least 30 days and show the transfer leaving the donor’s bank account and into the account of the receiver via bank statements.
Credit Scores Required
The mortgage loan borrower needs a minimum credit score of 620 FICO and needs an automated approval by Fannie Mae’s automated underwriting system.
- The maximum loan amount is $424,100 on conventional loans.
- Higher loan limits are allowed on high cost areas like many counties in California.
- Reserves may be required on two to four unit properties and if the automated findings conditions reserves as part of the automated underwriting system approval.
5% Down Payment Conventional Loan Programs
The 5% down payment conventional loan program is the minimum down payment required on conventional loans unless the home buyer is a first time home buyer. First time home buyers qualify for 3% down payment conventional loans.
- Minimum credit scores of 620 FICO is required on all conventional loans.
- The mortgage loan borrower needs to provide proof of having a minimum of the 5% down payment in their bank account for a period of 60 days.
- Some mortgage lenders might allow the mortgage loan borrower to get a gift from a relative or family member but then the donor needs to provide proof of the funds via providing the mortgage lender seasoned funds for the past 30 days and the money transferring the donor account into the receiver account as well as provide a gift letter.
- As with the 3% down payment conventional loan program, an automated approval via Fannie Mae’s automated underwriting system is required with an approved eligible.
- Reserve requirements may be required for those who own other rental or investment properties.
- Maximum loan sizes on 5% down payment purchase conventional loan programs is $417,000.
Financing Requirements On Vacation Homes
On vacation homes and second homes, a minimum of a 10% down payment is required along with a minimum credit score of 620 FICO.
- Those seeking a vacation home must meet debt to income ratio requirements of a minimum of 45% or an approved eligible via the automated underwriting system.
- 10% down payment requirements on second homes.
- Again, the maximum loan size for a conventional loan for vacation homes and second homes are $424,100.
Financing Requirements On Investment Homes
For those mortgage loan borrowers seeking investment home conventional loans, the maximum loan to value allowed is 85% with a minimum credit score of 620 FICO with single family homes.
- Multi-Unit require 25% down payment.
- Those mortgage loan borrowers with two or more properties wanting to purchase a third or fourth home, are considered investment home loan borrowers so the investment conventional loan program will apply.
- Mortgage lenders will also require three months reserves on investment properties financing.
- One months reserves is equivalent to one month of principal, interest, taxes, and insurance or commonly called PITI. Investment home buyers can also get sellers concessions by the investment home seller.
- The maximum amount of sellers concessions allowed on investment homes is 2% per Fannie Mae and Freddie Mac mortgage lending guidelines.
Conventional Loan Requirements After Bankruptcy & Foreclosure
There are mandatory waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale to qualify for conventional loans.
- 4 year waiting period after Chapter 7 Bankruptcy discharged date to qualify for conventional loans.
- 2 year waiting period after Chapter 13 Bankruptcy date to qualify for conventional mortgage loans.
- There is a four year waiting period to qualify for conventional loans after deed in lieu of foreclosure and/or short sale.
- There is a seven year waiting period to qualify for conventional loans after the recorded date of standard foreclosure.
Borrowers who need to qualify for Conventional Loans with a direct lender with no lender overlays please contact The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or text us at 262-716-8151 for faster response. We are available 7 days a week, evenings, weekends, and holidays.