Conventional loan With Low Credit Scores Mortgage Guidelines

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Conventional loan With Low Credit Scores Mortgage Guidelines

This BLOG On Conventional loan With Low Credit Scores Mortgage Guidelines Was UPDATED On July 30th, 2018

Conventional Loans are different than government loans with pricing mortgage rates versus credit scores:

  • Conventional Mortgages are extremely credit sensitive due where the lower the credit scores, the higher the mortgage rates
  • Government Loans are FHA Loans, VA Loans, and USDA Loans
  • Considered government loans because they are either insured and/or backed by the government in the event borrowers defaults
  • For example, FHA Loans has extremely low mortgage rates
  • FHA have much lower mortgage rates
  • The reason why rates are so low is because the Federal Housing Administration guarantees lenders in the event of borrower default on their mortgages
  • Same with VA Loans
  • VA do not require any down payment and offers 100% financing
  • VA has one of the lowest mortgage rates than any other loan program and no mortgage insurance premium
  • VA does requires a one time VA Funding Fee
  • The reason being so low with no down payment required is because if borrower defaults on his or her VA Loan, the United States Department of Veteran Affairs will partially guarantee lender against of foreclosure
  • All government loans are originated and funded by banks and private lenders
  • Lenders need to follow the strict guidelines of either FHA, VA, or USDA
  • With Conventional Loans, things are different
  • There is no guarantee by any government entity on conventional loans
  • Conventional lenders normally want borrowers to put 20% down payment on home purchase
  • Borrowers can put as little as 3% or 5% down payment on a home purchase
  • Borrowers who put less than 20% down payment, private mortgage insurance is required
  • Private mortgage insurance is paid for by borrowers for the benefit of lenders in the event borrower defaults on their loan
  • Home buyers can qualify for conventional loan with low credit scores
  • Minimum credit scores required on conventional loans is 620

Conventional Loan Requirements On Credit Scores

Borrowers can qualify for conventional loan with low credit scores. By low credit scores, the minimum credit scores required on conventional loans is 620 credit scores.

  • Borrowers with credit scores under 620 will not qualify for conventional loans
  • Needs to try to boost their credit scores over 620
  • Besides meeting the minimum 620 credit scores, the maximum debt to income ratios allowed on conventional loans is 50% debt to income ratios
  • Borrowers with prior bankruptcy, there is a four year mandatory waiting period after the discharged date of Chapter 7 Bankruptcy
  • There is a two year waiting period after Chapter 13 Bankruptcy discharged date
  • There is a four year waiting period after Chapter 13 dismissal date
  • There is a four year waiting period after deed in lieu of foreclosure and/or short sale
  • The waiting period is 7 years to qualify after standard foreclosure

Down Payment Requirements On Conventional Loans

Fannie Mae now allows a 3% down payment on conventional loans for first time home buyers.  Freddie Mac allows 3% down payment for home buyers who have not owned a home for at least three years. Normally, the minimum down payment requirement for conventional loans is 5% down payment. To get the best mortgage rates on conventional loans, borrowers needs a 740 credit score and 20% down payment. Prior bankruptcies, foreclosures, deed in lieu of foreclosures, or short sale have no impact on mortgage rates with conventional loans.

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