Conventional Loan With Bad Credit Mortgage Guidelines
This ARTICLE On Conventional Loan With Bad Credit Mortgage Guidelines Was PUBLISHED On September 14th, 2020
- Conventional Loan With Bad Credit Mortgage Guidelines allows for borrowers with bad credit to qualify for conventional loans
- Many borrowers think conventional loans are for borrowers with higher credit scores and good credit
- This is not true
- Mortgage rates on conventional loans are more sensitive to credit scores than government loans
- Conventional loans are also referred to as conforming loans
- This is because conventional loans need to conform to Fannie Mae and/or Freddie Mac Guidelines
- Wait a minute?
I thought conventional loans were not government-backed loans so why do they need to conform to Fannie Mae and/or Freddie Mac Agency Mortgage Guidelines?
What Are Conventional Loans?
Conventional loans are private loans:
- Private lenders will originate and fund conventional loans
- Private lenders and banks use their warehouse line of credit to originate and fund conventional loans
- However, they need to sell conforming loans to the secondary mortgage bond market to Fannie Mae and Freddie Mac
- Fannie Mae and Freddie Mac will not purchase home mortgages that do not conform to their guidelines
- Lenders need to sell the loan they fund on the secondary market to Fannie and/or Freddie so they can pay down their warehouse line of credit and repeat the originating and funding home mortgage process
- Fannie Mae and Freddie Mac Agency Guidelines allow borrowers with bad credit to qualify for conforming loans
- Gustan Cho Associates are experts in helping borrowers qualify for conventional loans with bad credit and lower credit scores
In this article, we will discuss and cover Conventional Loan With Bad Credit Mortgage Guidelines.
Can I Qualify For A Conventional Loan With Bad Credit
There are instances where borrowers with bad credit need to go with conventional versus FHA loans.
- FHA loans are very popular for borrowers with lower credit scores and prior bad credit
- It is easier to get an approve/eligible per automated underwriting system (AUS) with bad credit on FHA versus Conventional loans
- Borrowers with credit scores down to 500 FICO can qualify for an FHA loan with an approve/eligible per AUS
- The minimum credit score requirement on conventional loans is 620 FICO
- Outstanding collections and charged-off accounts do not have to be paid to qualify for both FHA and conventional loans. Conforming loans allow for a second home and investment home financing
- Government loans are for owner occupant primary home financing only
- The waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, a short sale is longer on conventional versus FHA loans
- FHA loans do no longer exempt deferred student loans that have been deferred longer than 12 months
- HUD does not accept income-based repayment (IBR payments) on FHA loans
Fannie Mae and Freddie Mac accept income-based repayment (IBR Payments) on conventional loans.
Conventional Loan With Bad Credit Mortgage Guidelines: Minimum Agency Guidelines
There are two different types of conforming loan guidelines.
- The first is the minimum agency guidelines of Fannie Mae and/or Freddie Mac
- The second is lender overlays set by each individual lender
- Lenders require all borrowers to meet the minimum agency guidelines of Fannie Mae and/or Freddie Mac
- However, each lender can have higher lending requirements above and beyond the minimum agency guidelines of Fannie and/or Freddie
- Lenders can have lender overlays on just about anything
- For example, lenders can require a higher credit score requirements on second home financing or investment home mortgages
- A lender can require a 660 to 680 credit score on second home and investment home financing when the minimum conventional loan guidelines are set a 620 FICO
- A lender can set a lender overlays on debt to income ratios at 45% DTI when Fannie and Freddie allow a maximum DTI cap at 50%
The good news is there are lenders like Gustan Cho Associates that have no lender overlays on government and conventional loans.
Minimum Conforming Mortgage Guidelines On Conventional Loans
Below are the minimum conforming mortgage guidelines on conventional loans:
- You must be a US citizen and/or legal resident
- The minimum credit score of 620 is required on all conventional loans
- Minimum down payment of 3% for first-time homebuyers
- Seasoned home buyers require a 5% down payment
- First-time homebuyers are defined as a homebuyer who had no ownership in a home in the past three years
- Private mortgage insurance (PMI) is required for home buyers with down payments less than 20%
- 2-year work history is required
- Fully documented income
- Debt to income ratio of 50% or less
- There is a four-year waiting period after the Chapter 7 Bankruptcy discharged date
- There is a four-year waiting period after a deed in lieu of foreclosure and/or as short-sale
- There is a seven-year waiting period after a regular foreclosure
- There is a two-year waiting period after the Chapter 13 Bankruptcy discharged date
- There is a four-year waiting period after a Chapter 13 Bankruptcy dismissal date
Self-employed borrowers can qualify for conventional loans with two-years as a self-employed worker and two-years of income tax returns.
To qualify for a conventional loan with a five-star national mortgage company licensed in multiple states with no lender overlays on government and conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.