Fannie Mae And Freddie Mac Guidelines
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 that Conventional Loan borrowers needs to meet 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.
- 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 who owned a property in the past three years.
- Conventional loans are credit sensitive unlike FHA insured mortgage loans.
- By credit sensitive, the lower your credit scores, the higher your mortgage rates.
- Fannie Mae And Freddie Mac do not insure Conventional Loans like HUD insures FHA 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 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 FICO.
- With FHA insured mortgage loans, the minimum credit score required to qualify is with a 530 FICO score.
- A home buyer can qualify for a 10% down payment FHA loan if their credit scores fall between 530 FICO and 579 FICO.
- If your credit scores are over 580 FICO, you 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 FICO, FHA will allow up to 56.9% DTI on the back end and no greater than 46.9% front end DTI.
Fannie Mae And Freddie Mac Guidelines On Credit Scores
The minimum credit score required for a conventional loan is 620 FICO. Most mortgage lenders have overlays for borrowers of conventional loans where they require a minimum credit score of 640 FICO or higher. To get the best mortgage rates on conventional mortgage loans, a borrower needs a 740 FICO 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 the 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.
- FHA loans are not credit sensitive like conventional loans. Any conventional mortgage loan borrower with lower than 740 FICO credit scores will be paying higher mortgage rates.
- The lower your credit scores, the higher your mortgage rates.
Gustan Cho NMLS ID 873283