Conventional Mortgage Loans Fannie Mae Guidelines

This Article Is About Conventional Mortgage Loans Fannie Mae Guidelines. There are two types of traditional loans. Government and conventional loans. There are three types of government loans:

  1. FHA loans
  2. VA loans
  3. USDA loans

The reason FHA, VA, and USDA loans are called government loans is that they are backed by a government agency in the event borrowers default and/or foreclosure. Private mortgage companies originate and fund government loans. Lenders need to make sure borrowers follow mortgage agency lending guidelines in order for it to be insurable. In the event the borrower default and/or foreclosure on government loans, the government agency will insure part of the loss. However, this is not the case with conventional loans. Conventional loans do not have any government agency insuring the lender in the event borrowers default and foreclose. Then why do conventional loans have to follow Fannie Mae and/or Freddie Mac Agency Guidelines? We will discuss and cover how Fannie Mae and Freddie Mac’s role is on conventional loans in the next paragraph.

The Role Of Fannie Mae And Freddie Mac

Fannie Mae and Freddie Mac are the largest buyers of mortgage-backed securities in the United States. Mortgage companies use their warehouse line of credit when they fund mortgages. A warehouse line of credit is somewhat like a credit card. Lenders use their warehouse line of credit to fund every loan. However, they need to sell the loan they fund and pay down the warehouse line of credit. Lenders may sell the loan they funded to a larger mortgage banker and ultimately the larger mortgage banker will sell it to Fannie Mae and/or Freddie Mac. Once the lender sells the loan they fund to the secondary market, they use the proceeds of the sale to cover their warehouse line of credit. The secondary mortgage market will not purchase any funded loans from a lender if the loan does not conform to Fannie Mae and/or Freddie Mac Agency Guidelines. This is why conventional loans are referred to as conforming loans.

30 year fixed mortgage rates on conventional loans are generally higher than FHA mortgage rates. Mortgage Rates on Conventional Mortgage Loans are generally more sensitive to credit scores and loan to value than government loan programs. Conventional mortgage rates have since been dropping over the past several weeks. We now have special conventional mortgage loan programs that can benefit both purchase and refinance conventional mortgage borrowers.

Down Payment Requirements On Conventional Mortgage Loans

We offer conventional mortgage loan programs up to 97% loan to value for a primarily residential home. The minimum credit score needed to qualify is 620 FICO. The 620 credit scores are the minimum credit scores required for all occupancy types of conventional mortgage loans.

Types Of Conventional Loans

There are various types of conventional loans. The following are the types of conventional loans.

  • Purchase borrowers
  • Limited Cash-Out Refinance borrowers
  • Cash-Out Refinance borrowers

Terms On Conventional Loans

Residence Types

There are multiple terms offered on conventional loans:

  • 10 year fixed rate
  • 15 year fixed rate
  • 20 year fixed rate
  • 25 year fixed rate
  •  30 year fixed rate
  • 15, 30-year fixed for High Balance conventional mortgage loans

Residence Types

Government loans are for owner-occupant properties. However, Conventional Loans allow for second and investment properties:

  • Primary residence (owner-occupied) which includes single-family homes, townhomes, and condominiums
  • No condo-hotel units
  • Fannie Mae and/or Freddie Mac does not offer financing on NON-Warrantable Condos and Condotel Financing

Condotel Financing & Non-Warrantable Condominium Loans

Condotel and NON-Warrantable Condo Financing are NOT Conventional Loans. These types of loans are portfolio loans.

  • Condotel units mortgage loans are available on 3/1 ARM, 5/1 ARM, 7/1 ARM portfolio mortgage loan products amortized over 30 years
  • Index for Condotel mortgage loans are based on the one year Cost Maturity Treasuries (1-year treasuries) and the margin is set at 3%
  • The adjustment rate after the initial fixed rate expires cannot be lower than the start rate
  • Please contact me for more information on Condotel mortgage loans at 262-716-8151 or text us for a faster response or email us at [email protected]
  • Or visit us at www.gustancho.com

Types Of Properties That Can Be Purchased With Conventional Loans

Properties That Can Be Purchased With Conventional Loans

1-4 unit single-family residential units.

  • FNMA approved condos and PUDs (check)
  • Manufactured housing
  • 2nd / vacation homes
  • Non-Owner occupied – Investment properties

Loan to Value (LTV): (Standard Primary Residence)

  • 97% for Purchase conventional mortgage loan programs
  • 97% for Rate / Term refinance conventional mortgage loan programs
  • 80% for Cash-Out refinance conventional mortgage loan programs

Mortgage Insurance

Conventional loans with higher than an 80% loan to value require mortgage insurance.

  • All mortgage insurance will be followed by Fannie Mae’s Automated Approval DU findings
  • Standard MI coverage required
  • Lender paid mortgage insurance program available for a slightly higher mortgage rate

Mortgage insurance premiums on conventional loans vary on the borrower’s credit scores, type of property, and other layered risks.

Gustan Cho NMLS ID # 873293

Related> Conventional Loans

Related> 3% Down Payment Conventional Loans

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