Fannie Mae Mortgage Guidelines And Requirements On Conforming Loans

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Fannie Mae Mortgage Guidelines And Requirements On Conforming Loans

This BLOG On Fannie Mae Mortgage Guidelines And Requirements On Conforming Loans Was UPDATED On September 6th, 2018

Update Fannie Mae Mortgage Guidelines On Conventional Loans

There are several changes with Fannie Mae Mortgage Guidelines for home buyers interested in getting conventional loans on home purchases.

  • Fannie Mae and Freddie Mac are the two mortgage giants that set standards and mortgage lending guidelines for conventional loans
  • Conventional Loan programs are different than FHA Loans Programs, VA Loan Programs, and USDA Loan Programs
  • It is not just limited to primary owner occupant home financing
  • Conforming Loans enables second home financing as well as investment home financing
  • Government loan programs, which are FHA Loans, VA Loans, and USDA Loans do not allow for second home loans and investment loans
  • Government Loans are only for owner occupied primary residences only
  • Home buyers who need to purchase second homes or investment homes would need conventional financing
  • On this article we will discuss Fannie Mae Mortgage Guidelines versus other mortgage loan programs
  • The changes that are ahead in Fannie Mae Mortgage Guidelines with regards to conventional loans will be discussed on this BLOG

Fannie Mae Mortgage Guidelines With Regards To Debt To Income Ratios And Non-Occupant Co-Borrowers

Fannie Mae Mortgage Guidelines on debt to income ratio requirement on conventional loans is capped at 50% DTI in order to get an approve/eligible per Fannie Mae’s Automated Underwriting System. Unfortunately, private mortgage insurance companies will rarely insure conventional loans pass the 45% debt to income ratio cap unless borrowers have 700% credit scores.

Buyers of homes with 20% down payment should have no issues with 50% debt to income ratios because no private mortgage insurance is required on 80 LTV.

  • FHA debt to income ratio requirements for borrowers with at least a 620 credit scores are capped at 56.9% DTI back end
  • FHA Loans allow for multiple non-occupant co-borrowers to be added
  • However, Fannie Mae does not allow for non-occupant co-borrowers on conventional loans
  • Fortunately, Freddie Mac does allow non-occupant co-borrowers to be added on conventional loans
  • Unfortunately, not all lenders are Freddie Mac approved
  • Fannie Mae is by far the most popular and common conventional mortgage program among lenders
  • Most conventional mortgage lenders are mainly Fannie Mae approved

Fannie Mae Mortgage Guidelines On Down Payment For Home Purchase

Fannie Mae re-launched the 3% down payment home purchase conventional loan program for first time home buyers.

  • Fannie Mae and Freddie Mac have same down payment on home purchases for conventional mortgages
  • Down payment depends on whether or not home buyer is buying a primary owner occupied homes, second homes, or investment homes
  • Freddie Mac offers the 3% down payment home purchase conventional loan program for first time home buyers
  • First time home buyers is defined as buyers who have not owned a home for at least three years
  • Most conventional loans require 5% down payment on home purchases on owner occupied homes
  • Second homes require 10% down payment and second homes need to be at least 100 miles from the second home buyer’s primary residence in order to be classified a second home
  • Second homes that are closer to the borrower’s primary home can qualify for second home financing only if the second home purchase makes sense
  • Making sense is such as being a waterfront property, golf course property, or in a resort like Orlando’s Disney World area
  • There is no distance requirements on second homes that are waterfront and/or resort areas

Fannie Mae Mortgage Guidelines On Investment Homes

Buyers of investment homes can use potential rental income on a property that has no lease:

  • If real estate investor needs to use 75% of the potential rental income on the investment home purchase, then they can do so if they can put 25% down payment

All Fannie Mae and Freddie Mac conventional loan borrowers need a 620 credit score to qualify for conventional loans.

  • All conventional loans with greater than 80% loan to value will require private mortgage insurance
  • One of the main advantages with having private mortgage insurance with conventional loans versus FHA Loans is that private mortgage insurance automatically cancels when the loan to value reaches 78% loan to value on conventional loans
  • Whereas FHA mortgage insurance premium is mandatory with the life of the 30 year fixed rate FHA mortgage loan

Lender Paid Mortgage Insurance

With conventional loans, there is Lender Paid Mortgage Insurance.

where there is no private mortgage insurance required for borrowers with over 80% loan to value.

  • No annual private mortgage insurance in lieu of a higher mortgage rate on their conventional loans
  • There is also an upfront lender paid mortgage insurance program
  • This is where for a larger one time upfront mortgage insurance premium, there is no private mortgage insurance
  • Similar to the upfront FHA MIP

Fannie Mae Mortgage Guidelines On Waiting Period After Bankruptcy And Foreclosure

Fannie Mae Mortgage Guidelines in qualifying for a conventional loan after a bankruptcy is as follows:

  • There is a mandatory waiting period of 4 years from the discharged date of the Chapter 7 Bankruptcy
  • There is a two year waiting period after Chapter 13 Bankruptcy discharged date
  • Fannie Mae and Freddie Mac does not allow borrowers to qualify for Conforming Loans while they are in an active Chapter 13 Bankruptcy Repayment Plan

Mortgage After Bankruptcy And Housing Event

  • If the mortgage borrower had mortgage part of bankruptcy they can qualify for a conventional loan 4 years from the discharge date of the Chapter 7 Bankruptcy
  • This holds true even though the foreclosure was recorded at a later date
  • Fannie Mae Mortgage Guidelines on waiting period after a deed in lieu of foreclosure and short sale is a mandatory waiting period of 4 years
  • Deed in Lieu of Foreclosure waiting period start date is from the recorded date of the deed in lieu of foreclosure
  • Four year waiting period after the date of the short sale to qualify for a conventional loan
  • Fannie Mae Mortgage Guidelines in qualifying for a conventional loan after a foreclosure is a mandatory 7 year waiting period
  • The seven year waiting period start date starts from the recorded date of the foreclosure
  • Both the waiting period after the deed in lieu of foreclosure and/or foreclosure is based on the recorded date of the foreclosure
  • The recorded date is the date where the borrower’s name is out of the deed and into the deed of the mortgage lender
  • Or the date of the sheriff’s sale where the homeowner’s name has transferred out of the mortgage note into someone else’s name

Borrowers who need to qualify for mortgage with a direct lender with no overlays on government and conventional loans can contact us at The Gustan Cho Team at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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