Down Payment Requirements On Conventional Loans

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This ARTICLE On The Down Payment Requirements On Conventional Loans Was PUBLISHED On February 14th, 2020

What are the requirements for an advance on conventional loans?

Conventional Loans are often referred to as conforming loans.

  • This is because they need to conform to Fannie Mae and/or Freddie Mac mortgage guidelines
  • Conforming loans are not government loans
  • If they are not insured by a government agency, then why are they regulated and why do they need to conform to Fannie and/or Freddie Guidelines?
  • This is a commonly asked question by many consumers, loan officers, and realtors
  • Lenders will originate and fund conventional loans with their own money (warehouse lines of credit)
  • After they fund the loan, lenders will sell the conventional loan they fund to the secondary market, Fannie/Freddie
  • In order for Fannie and/or Freddie to purchase the loans on the secondary market, the conventional loans need to conform to their mortgage guidelines
  • If they do not conform, Fannie Mae and/or Freddie Mac will not purchase the loan
  • This is why it is very important that all lenders require all conventional loans conform to Fannie Mae and/or Freddie Mac guidelines

In this article, we will discuss and cover Down Payment Requirements On Conventional Loans.

Down Payment Requirements On Conventional Loans Depends On Occupancy Type

All government loans are for owner-occupant homes only. FHA, VA, USDA only lend on owner-occupant homes.

  • Homebuyers who want to finance a second home, and/or investment home need to seek either conventional and/or other types of alternative financing such as non-QM loans
  • The type of Down Payment Requirements On Conventional Loans depends on the type of occupancy type

The type of occupancy determines the amount of down payment and the type of mortgage rates the borrower will get.

Loan Level Pricing Adjustments On Mortgage Rates

There are loan level pricing adjustments (LLPA) on the type of property and types of occupancy such as the following:

  • Primary residence
  • Second homes
  • Investment property
  • Condos
  • Two to four-unit multi-family homes

The Minimum Down Payment Requirements On Conventional Loans 

What are the minimum requirements for an advance on conventional loans?

Below are the Down Payment Requirements On Conventional Loans:

  • Primary owner-occupant homes require 3% to 5% down payment
  • 3% Down Payment Requirements On Conventional Loans are for first-time homebuyers only
  • A first-time homebuyer is one who has not had ownership in a home in the past three years
  • All others require 5% down payment on an owner-occupant primary home purchase
  • Second and/or vacation homes require 10% down payment
  • Investment homes require a minimum of 15% to 20% down payment

One to four-unit homes is eligible for conventional financing. The number of units in a property does play a role in the down payment requirements on conventional loans.

Types Of Property And Down Payment Requirements On Conventional Loans

Any residential homes that are one to four units can qualify for conventional financing.

  • FHA only requires a 3.5% down payment on an owner-occupant two-four unit multi-family property
  • However, this is not the case with conventional loans
  • Conventional loans require a 15% down payment on 2 to 4 unit owner-occupant primary residences

Both Fannie Mae and Freddie Mac require a 25% down payment on two to four-unit investment properties. Single-family homes, condos, and townhomes only require a 3% to 5% down payment.

Credit Guidelines On Conventional Loans

Since conventional loans are not insured nor partially guaranteed by the federal government, the credit standards are tougher than government mortgage guidelines.

  • The minimum credit score requirement on all conventional loan programs is 620 FICO
  • Conforming mortgage rates are really dependent on both the loan to value and credit scores
  • The higher the risk the lender takes, the higher the mortgage rates
  • There is no manual underwriting on conventional loans
  • All borrowers need to get an approve/eligible per automated underwriting system (the AUS)
  • All borrowers need to meet conforming agency guidelines

The guidelines can be found by the Fannie Mae and/or Freddie Mac Selling Guide published:

Fannie Mae And Freddie Mac Down Payment Requirements On Conventional Loans And Matrix

What are Fannie Mae and Freddie Mac's requirements for conventional loan advances and matrices

Here are the basic down payment requirements on Conventional Loans:

Owner-Occupant Primary Homes:

  • 3% to 5% down payment
  • Only borrowers who had not had homeownership in the past three years are eligible for the 3% down payment loan program
  • All other buyers need to put 5% down payment
  • 2 to 4 unit properties require 15% down payment
  • Gustan Cho Associates has 5% down payment loan program on 2 to 4 unit homes

Second-Home Mortgage Guidelines:

  • All second and/or vacation homes require 10% down payment

Investment Properties:

  • 1 unit – 15% down payment
  • 2 to 4 unit – 25% down payment

Cash-Out Refinance Guidelines On Conventional Loans

Below are the cash-out refinance mortgage guidelines on Conforming Loans:

  • Owner-occupant single-family and/or one unit homes allow up to 80% LTV on cash-out refinance mortgages
  • Maximum cash-out on an investment property for a 1 unit is 75% loan-to-value for traditional loans
  • 2 to 4 units max cash out on an investment property is 70% loan-to-value
  • Higher max cash out on investment property loan-to-values is made available through Non-QM loans

For more information about our special loan programs at Gustan Cho Associates, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com.

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