Conventional Versus Government Mortgage Guidelines And Benefits

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Conventional Versus Government Mortgage Guidelines And Benefits

This ARTICLE On Conventional Versus Government Mortgage Guidelines And Benefits Was PUBLISHED On August 8th, 2019

what are the Conventional Versus Government Mortgage Guidelines And Benefits

The differences between Conventional Versus Government Mortgage Guidelines And Benefits for borrowers:

There are three types of government loans:

  • FHA Loans
  • VA Loans
  • USDA Loans

We will cover the differences between conventional versus government mortgage guidelines in the following paragraphs. There are times where borrowers may need to go with conventional versus government loans.

What Are Government Loans

What Are Government Loans

Government Loans are owner-occupant home loans for borrowers of primary residences originated and funded by private lenders.

  • It is often called government loans
  • This is because they are partially insured and guaranteed by a government agency
  • FHA, VA, USDA will partially insure and guarantee lenders against the loss they sustained in the even the borrowers’ default and foreclose on their government loans
  • Due to this government guarantee, lenders can offer borrowers low to zero down payment requirements at low mortgage rates
  • Conventional Loans are not government loans
  • They are private loans

What Are Conventional Loans

What Are Conventional Loans

Conventional Loans are often referred to as conforming loans:

  • This is because of the need to conform to Fannie Mae and/or Freddie Mac Guidelines
  • Why do Conventional Loans need to conform to Fannie/Freddie Agency Guidelines if they are private loans?
  • This is because lenders sell conforming loans on the secondary market to Fannie Mae and/or Freddie Mac once they fund the loan
  • If the loan does not conform to Fannie Mae and/or Freddie Mac Lending Guidelines, Fannie/Freddie will not purchase the conventional loans
  • This is the reason why lenders require borrowers to conform to Fannie/Freddie Guidelines

In this article, we will cover and discuss Conventional Versus Government Mortgage Guidelines and Benefits for borrowers.

Conventional Versus Government Mortgage Guidelines On Minimum Credit Score Requirements

Conventional Versus Government Mortgage Guidelines On Minimum Credit Score Requirements

Conventional Versus Government Mortgage Guidelines on credit score requirements is higher.

  • The minimum credit score requirement to qualify on conventional loans is 620 FICO
  • HUD, the parent of FHA, requires a minimum credit score of 580 FICO for homebuyers needing to qualify for a 3.5% down payment FHA Loan
  • USDA generally requires a 580 credit score
  • The Department of Veterans Affairs (The VA) has no minimum credit score requirement
  • As long as borrowers can get an approve/eligible per automated underwriting system (The AUS), borrowers do not need to meet a minimum credit score requirements

Gustan Cho Associates have closed countless of VA Loans with credit scores in the low 500s.

Conventional Versus Government Mortgage Guidelines On Waiting Period Requirements After Bankruptcy And A Housing Event

what are the Conventional Versus Government Mortgage Guidelines On Waiting Period Requirements After Bankruptcy And A Housing Event

Conventional Versus Government Mortgage Guidelines in qualifying for a mortgage differs.

Here are the waiting period requirements to qualify for conventional loans after bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale versus government loans:

Fannie Mae and Freddie Mac require a 4-year waiting period after Chapter 7 Bankruptcy to qualify for conventional loans:

  • HUD and the VA require a 2-year waiting period after Chapter 7 Bankruptcy discharged date
  • USDA requires a three-year waiting period after Chapter 7 bankruptcy discharge date

Mortgage Included In Bankruptcy Waiting Period Requirements

what are the Mortgage Included In Bankruptcy Waiting Period Requirements

Fannie/Freddie Require a 2-year waiting period after Chapter 13 Bankruptcy discharged date to qualify for conventional loans. Borrowers with a prior mortgage included in the bankruptcy, there is a four-year waiting period after the discharged date of the bankruptcy to qualify for conventional loans. The foreclosure and/or housing event date after the bankruptcy does not matter. With FHA Loans, if the borrower had a prior mortgage included in their bankruptcy, there is a three year waiting period from the recorded housing event date to qualify:

  • FHA and VA does not have any waiting period requirements after Chapter 13 Bankruptcy discharged date
  • Borrowers in an active Chapter 13 Bankruptcy repayment plan can qualify for VA and FHA loans during the repayment period without the bankruptcy being discharged with Trustee Approval
  • There is a four-year waiting period after Chapter 13 dismissal date on conventional loans
  • There is no waiting period after Chapter 13 dismissal date on FHA and VA Loans

Non-QM Mortgages have no waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale.

Conventional Versus Government Mortgage Guidelines After Housing Event

what are the Conventional Versus Government Mortgage Guidelines After Housing Event

There is a four-year waiting period after a deed in lieu of foreclosure and/or short-sale to qualify for conventional loans. The waiting period is 7 years after a regular foreclosure to qualify for conventional loans:

  • FHA and USDA require a 3-year waiting period after a foreclosure, deed in lieu of foreclosure, short-sale to qualify for FHA and USDA Loans
  • The VA requires a two-year waiting period after foreclosure, deed in lieu of foreclosure, short-sale to qualify for VA Loans

Cases Where Borrowers Need To Go With Conventional Versus FHA Loans

what are the Cases Where Borrowers Need To Go With Conventional Versus FHA Loans

FHA and Conventional Loans are the top two most popular loan programs in the United States. There are instances where borrowers need to go with Conventional versus FHA Loans.

High-Balance Student Loans:

  • Fannie Mae and Freddie Mac allow Income-Based Repayment Plans to be used
  • HUD does not allow IBR Payment on FHA Loans
  • Borrowers with higher student loan balances may need to go with conventional versus FHA Loans
  • FHA requires 1.0% of the student loan balance to be used as a monthly hypothetical debt for those who have student loans in deferment and/or are in an IBR plan
  • Or the borrower can get a hypothetical monthly amortized payment over an extended-term from the student loan provider in writing

This can be used in lieu of the 1.0% of the outstanding student loan balance on FHA Loans.

Mortgage Included In Bankruptcy:

Borrowers who have a prior mortgage included in the Chapter 7 Bankruptcy may need to go with conventional versus FHA Loans if the lienholder did not change the title to the lender’s name until an extended date after the discharge date.

  • With Conventional Loans, there is a four-year waiting period after the discharged date
  • The housing event date does not matter
  • With FHA Loans, the three-year waiting period does not start until the actual recorded date of the housing event
  • The discharged date of the bankruptcy does not count

For more information about the contents of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

 

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