Fannie Mae And Freddie Mac Guidelines For Conventional Loans

Fannie Mae And Freddie Mac Guidelines For Conventional Loans

This BLOG On Fannie Mae And Freddie Mac Guidelines Was Written By Gustan Cho NMLS 873293

Fannie Mae And Freddie Mac Guidelines are the mortgage guidelines for Conforming Loans.

  • Conventional Loans are called Conforming Loans because they need to conform to Fannie Mae and Freddie Mac Guidelines
  • Conventional Loan borrowers needs to meet Fannie Mae and Freddie Mac Guidelines to qualify for Conventional Loans
  • Fannie Mae and Freddie Mac are the two Government Sponsored Enterprises (GSE) that is in charge of implementing mortgage guidelines for Conventional Loans
  • Conventional Loans are called Conforming Loans because they need to conform to Fannie Mae and/or Freddie Mac mortgage guidelines

About Conforming Loans

  • Fannie Mae and Freddie Mac are two different institutions
  • But are both in charge of setting up mortgage guidelines on Conventional Loans
  • The minimum down payment required for conventional loans is 3% down payment for first time home buyers and 5% down payment for Conventional borrowers
  • First time home buyers are people who did not own a property in the past three years
  • Conventional loans are credit sensitive unlike FHA insured mortgage loans
  • By credit sensitive, the lower credit scores, the higher mortgage rates. 
  • Fannie Mae And Freddie Mac do not insure Conventional Loans like HUD insures FHA Loans and VA insuring VA Loans
  • Fannie Mae and Freddie Mac will buy Conventional Loans that conform to their guidelines by private lenders
  • In order for Fannie Mae and Freddie Mac to purchase Conventional Loans, lenders needs to make sure that Conventional Loans they originate meet and conform to all Fannie Mae and Freddie Mac Guidelines
  • Conforming Loans needs to conform to Fannie Mae and/or Freddie Mac Guidelines with regards to credit, income, and other standards
  • Fannie Mae and Freddie Mac does not deal with consumers but deals with lenders

HUD Guidelines Compared To Fannie Mae And Freddie Mac Guidelines

  • To qualify for a 3.5% down payment FHA home purchase loan, minimum credit scores required is 580 credit score
  • With FHA insured mortgage loans, the minimum credit score required to qualify is with a 500 credit scores
  • A home buyer can qualify for a 10% down payment FHA loan if their credit scores fall between 500 and 579 
  • If credit scores are over 580 borrowers can qualify for a 3.5% down payment FHA insured mortgage loan
  • But debt to income ratio is capped at 43%
  • If credit scores are higher than 620, FHA will allow up to 56.9% DTI on the back end and no greater than 46.9% front end DTI to render an approve/eligible per Automated Underwriting System

VA Guidelines

Department Of Veteran Affairs (VA) offers 100% financing on VA Loans to veteran borrowers with honorable discharge and Certificate Of Eligibility (COE).

  • There is no minimum credit score requirements on VA Loans
  • There is no debt to income ratio caps on VA Loans
  • However, to get an approve/eligible per AUS Findings, Veteran Borrowers should have at least 580 credit scores
  • The Gustan Cho Team at USA Mortgage has zero mortgage lender overlays on VA Loans

Fannie Mae And Freddie Mac Guidelines On Credit Scores

The minimum credit score required for a conventional loan is 620

  • Most mortgage lenders have overlays for borrowers of conventional loans where they require a minimum credit score of 640 or higher
  • To get the best mortgage rates on conventional mortgage loans, a borrower needs a 740 score

Conventional Loans After Bankruptcy And Foreclosure

Waiting periods to qualify for conventional loans after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale are longer and lending guidelines are tougher than FHA insured mortgage loans.

  • With FHA insured mortgage loans, the waiting period after a bankruptcy to qualify for a FHA loan is 2 years from the discharge date of Chapter 7 bankruptcy
  • For conventional loans, the waiting period is 4 years from the discharge date of the Chapter 7 bankruptcy discharge date
  • The waiting period after the recorded  date of a foreclosure to qualify for a FHA insured mortgage loan is 3 years
  • The waiting period to qualify for conventional loans after the recorded date of a foreclosure is 7 years
  • The waiting period to qualify for FHA insured mortgage loan after a deed in lieu of foreclosure or short sale is three years
  • A conventional mortgage loan borrower can qualify for conventional loan financing after four years after a deed in lieu of foreclosure or short sale

Debt To Income Ratios Requirements On Conventional Loans

  • FHA insured mortgage loans maximum debt to income ratio requirements are capped at 46.9% front end debt to income ratio and 56.9% back end debt to income ratio. 
  • For conventional loans, Fannie Mae allows up to a 45% DTI
  • Freddie Mac will allow up to 50% Debt To Income Ratio
  • Those with great credit but higher debt to income ratios may need to turn to FHA insured mortgage financing due to the lower debt to income ratio caps of conventional loans

Conventional Loans Versus FHA Loans

FHA insured mortgage loans allow for non-occupied co-borrowers and 100% gift funds for their down payments. 

  • Fannie Mae does not allow for non-occupied co-borrowers
  • Freddie Mac does allow co-borrowers to be added on the loan
  • Gift funds are limited on how much gift funds can be gifted to the borrower
  • FHA loans allows for open collections and charge off debts not being paid off
  • Conventional loans frown upon prior bad credit and open collections and charge offs may need to be paid off prior to closing
  • Depends on what Automated Underwriting System conditions for
  • FHA loans are not credit sensitive like conventional loans
  • Any conventional mortgage loan borrower with lower than 740 credit scores will be paying higher mortgage rates
  • The lower credit scores, the higher your mortgage rates

Home Buyers who need to qualify for government and/or conventional loans with a direct lender with no mortgage overlays, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com.

Gustan Cho NMLS ID 873283

www.gustancho.com

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