Conventional Loan Requirement


Conventional Loan Requirement

What Are Conventional Loan Requirement:

A Conventional Loan is a residential mortgage loan which is not insured or guaranteed by the federal government.  Conventional Loan Requirement generally follow mortgage lending guidelines administered by government sponsored enterprises, also known as GSE.  Examples of Government Sponsored Enterprises are mortgage giants Fannie Mae and Freddie Mac.  There are two categories of Conventional Loan Programs and Conventional Loan Requirement. The first is called conforming conventional loan which are conventional loans that follow the mortgage lending guideline standards that is set by Fannie Mae and Freddie Mae.

What Are Non-Conforming Loans

Non-Conforming Loans do not meet the mortgage lending guideline standards of Fannie Mae and/or Freddie Mac. There are many differences between conventional loan programs and FHA loan programs.  There are times where a mortgage loan borrower that is qualified for a conventional loan needs to choose a FHA loan instead and there are cases where a FHA loan borrower needs to choose a conventional loan.

Conventional Loan Requirement

Conventional loan mortgages have tougher mortgage lending requirements than FHA loans. For example, if you had a prior foreclosure, there is a mandatory 7 year waiting period after a foreclosure to qualify for a conventional loan.  With FHA loans, the mandatory waiting period after a foreclosure is three year waiting period from the recorded date of the foreclosure and/or deed in lieu of foreclosure.  There is a mandatory waiting period of a 4 year waiting period after a bankruptcy to qualify for a conventional loan, however, most conventional loan mortgage lenders have mortgage lender overlays on those who filed bankruptcy and extend the waiting period to 7 years as part of their mortgage lender overlays.  Minimum credit scores required to qualify for a conventional loan is 620 FICO credit scores where with FHA loans, the minimum credit scores required to qualify for a 3.5% down payment home purchase loan is 580 FICO credit scores.

Conventional Loan Requirement On Home Purchase Down Payment

The minimum down payment required for a conventional loan is 5% down payment on a home purchase.  The debt to ratio caps are lower with conventional loans than it is with FHA loans.  Conventional Loan Requirements on debt to income ratios is 45% DTI. There are no conventional loan requirements on front end debt to income ratios. For FHA loans they are higher. If the mortgage loan borrower has credit scores of over 620 FICO, the front end debt to income ratios is capped at 46.9% and the back end debt to income ratios are capped at 56.9%.  There are FHA mortgage lenders who might lower the FHA debt to income ratio caps due to their own mortgage lender overlays.

Cases Where You Can Only Go With Conventional Loan

Conventional loans can be used for primary residential homes, vacation homes, second homes, investment homes, warrantable condos, planned unit developments, modular homes, manufactured homes, and residential mortgage loans for two to four unit properties.  There are cases where a FHA loan cannot work and a conventional loan is the only option for a mortgage loan borrower.  For example, for warrantable condominium buyers, if they choose to purchase a condo that is not FHA approved, you cannot get a FHA loan and need to get a conventional loan.  Cases like these happen often where a FHA approved mortgage borrower needs to qualify for a conventional loan in order to proceed witht he purchase.

Cases Where Conventional Loans Only Apply

Second home buyers, vacation home buyers, and investment home buyers all need to go with the conventional loan route because FHA only lends to owner occupied residential units.  Another major reason why a home buyer needs to go the conventional loan route is because FHA has lowered its maximum loan limits in 2014.  Unless the property is located in a high cost area, the maximum FHA loan limit for 2014 is $271,000.  Conventional loan maximum loan limits have not changed and still stands at $417,000 loan limit.  If you are planning on purchasing a higher priced home, you may need to go with the conventional loan route.

Gustan Cho

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