Conventional Loan Requirement And Mortgage Guidelines
Conventional Loan Requirement And Mortgage Guidelines
This BLOG On Conventional Loan Requirement And Mortgage Guidelines Was UPDATED On February 7th, 2019
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 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.
- Reason why conventional loans are called conforming loans is because they need to conform to Fannie Mae and/or Freddie Mac Guidelines
- In order for lenders to be able to sell conventional loans on the secondary market after they fund to Fannie and/or Freddie, they need to conform to Fannie/Freddie Guidelines
- If they do not conform, Fannie/Freddie will not purchase them.
Differences Between Conforming Versus Government Loans
Government Loans are the following:
- FHA Loans
- VA Home Loans
- USDA Loans
The above government agencies guarantee lenders of government loans in the event borrowers default and the property goes into foreclosure. Due to the government guarantee, lenders are able to offer low down payment and/or no down payment at very low interest rates on government loans.
Differences Between Government And Conforming Loans
- There are many differences between Conventional and FHA loan programs
- There are times where borrowers that is qualified for a conventional loan needs to choose a FHA loan instead
- There are cases where borrowers needs to choose a conventional loan
Conventional Loan Requirement
Conventional loan mortgages have tougher mortgage requirements than FHA loans.
- For example, borrowers with 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 or short sale
- There is a mandatory waiting period of a 4 year waiting period after a bankruptcy to qualify for a conventional loan
- However, most lenders have overlays on those who filed bankruptcy and extend the waiting period to 7 years as part of their lender overlays
- Minimum credit scores required to qualify for a conventional loan is 620 credit scores
- Four year waiting period after short sale and/or deed in lieu of foreclosure to qualify for conventional loans
- FHA loans, the minimum credit scores required to qualify for a 3.5% down payment home purchase loan is 580 credit scores
- Conventional Loan Requirement On Home Purchase Down Payment is 3% for first time home buyers and 5% for seasoned home buyers
Down Payment On Conforming Loans
The minimum down payment required for a conventional loan is 5% down payment on a home purchase.
- First time home buyers with higher credit scores can qualify with 3% down payment on conventional loans
- Fannie Mae and Freddie Mac define a first time home buyer as borrowers who did not have ownership in a home for the past three years
- 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 normally 45% but can get as high as 50% DTI
- There are no conventional loan requirements on front end debt to income ratios
- For FHA loans they are higher
- If the borrower has credit scores of over 620, 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 lenders who might lower the FHA debt to income ratio caps due to their own mortgage lender overlays
Cases Where Borrowers Can Only Go With Conventional Loans
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
- Conventional loan is the only option for borrowers
- Conventional Loans allows Income Based Repayment
- FHA does not allow IBR Payments
- FHA requires 1% of the outstanding student loan balance to be used and not IBR Payments on student loans
- 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 borrower needs to qualify for a conventional loan in order to proceed with the 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. FHA, VA, USDA only lends to owner occupied residential units.
- Another major reason why a home buyer needs to go the conventional loan route is due to higher loan limits on conventional versus FHA Loans
- Unless the property is located in a high cost area, the maximum FHA loan limit for 2019 is $314,827
- Conventional loan maximum loan limits stands at $484,350 loan limit
- Home Buyers planning on purchasing a higher priced home, buyers may need to go with the conventional loan route
Qualifying For Conventional Loans With Lender With No Overlays
The Gustan Cho Team has no overlays on government and conventional loans. We are direct lenders licensed in multiple states. Over 75% of our borrowers are folks who could not qualify at other lenders due to their overlays. Home Buyers who need to qualify for mortgage with a national five star lender with no mortgage overlays, please contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays.