Fixing Your Credit To Qualify For Conventional Loan Mortgages
This BLOG On Fixing Your Credit To Qualify For Conventional Loan Mortgages Was UPDATED And PUBLISHED On June 24th, 2020
The are times where mortgage borrowers just need to go with conventional loans instead of FHA, VA, USDA Loans.
- For example, borrowers with very high student loan balances may only qualify for conventional loans
- This is because Fannie Mae and/or Freddie Mac is the only loan program that accepts Income Based Repayment Plans (IBR)
- HUD, the parent of FHA, require 1.0% of the student loan balance to be used as a hypothetical debt with debt to income ratio calculations
- The Department of Veterans Affairs requires 5% of the outstanding student loan balance divided by 12 months
- This number is the hypothetical debt to be used in borrowers DTI calculations
- USDA has the same guidelines as HUD when it comes to student loans
Doctors, dentists, veterinarians, lawyers, and educators often have higher student loan debts than most other professionals due to their advanced degrees. These professionals with student loan balances well into the six figures may need to go with conforming loans than other loan programs due to FANNIE/FREDDIE allowing IBR Payments where other loan programs do not allow it.
What Are Conventional Loans
Conventional Loans are also referred to as conforming loans. This is because they need to conform to Fannie Mae and/or Freddie Mac Guidelines.
Conventional Loans and FHA Loans are both mortgage loan programs for one to four unit properties:
- However, FHA Loans are for only owner occupied properties only
- Conventional Loans can be used for owner occupied properties, second homes, and investment homes and the Requirements are much more tougher than FHA Loan Requirements
- FHA Loans are not just for home buyers with bad credit
- They are also for borrowers with great credit but higher debt to income ratios
This is due to the more lax FHA lending standards compared to other mortgage programs.
Fixing Your Credit To Qualify For Conventional Loan And Meeting Guidelines
Conventional Loans have higher credit standards than FHA Loans.
- Minimum credit scores to qualify is 620 credit scores compared to 580 credit scores for FHA Loans
- Debt to income ratio capped at 50% debt to income ratios
- FHA has debt to income ratio caps at 46.9% front end and 56.9% back end to get an approve/eligible per automated underwriting system approval
Deferred student loans that are deferred for at least 12 months are no longer exempt from debt to income calculations with FHA Loans.
Income Based Repayment (IBR) is not allowed on FHA Loans but they are allowed on conventional loans.
- There is a four waiting period after Chapter 7 Bankruptcy required on conforming mortgages
- The waiting period is only two years from the discharged date of Chapter 7 bankruptcy to qualify for FHA Loans
- There is a three year waiting period after the recorded date of foreclosure to qualify for FHA Loans
- There is a seven year waiting period after the recorded date of a foreclosure to qualify for conforming loans
- There is a three year waiting period to qualify for a FHA Loan after a deed in lieu of foreclosure and/or short sale
The waiting period is four years after a deed in lieu of foreclosure and/or short sale per Fannie Mae/Freddie Mac Guidelines.
Cases Where Conforming Mortgages Is Only Option
FHA Loans, VA Loans, USDA Loans are only for owner occupant properties only.
- Home buyers can purchase owner occupant properties, second homes, and investment properties with conforming mortgages
- FHA Loans, VA Loans, USDA Loans only allows owner occupant properties
- Home buyers can only qualify second homes and investment properties with conforming loans
- However, conforming mortgages have tougher credit standards than government loans ( FHA Loans, VA Loans, USDA Loans )
- Borrowers with bad credit may need fixing your credit to qualify for conventional loan
- Minimum credit scores required to qualify for conforming loans is 620
FHA Loans require 580 credit scores with a 3.5% down payment.
Tips In Fixing Your Credit To Qualify For Conventional Loan
If credit scores fall below 620 credit scores, fixing your credit to qualify for conventional loan may be the only option. There may be some quick fixes to boost credit scores.
- Consumers with high credit card balances can pay down balance to at least 10% of credit card limit
- This will boost credit scores substantially
- Borrowers with little or no active credit tradelines may try adding yourself as an authorized user to a family member’s credit card account
- This needs to be well thought out
- The main credit card holder needs to have perfect credit payment history
- Needs to have a very low credit card balance
- By adding yourself as authorized user to a family member’s credit card account will enable borrowers to get instant credit tradelines
- Borrowers can also get three to five secured credit cards with at least $500 credit limit
- Each one of those secured credit cards can boost credit scores by at least 10 to 20 points
- Credit scores will keep on going up as credit cards ages with timely credit payment history
- Do not apply for unsecured credit cards unless credit scores are at least 700
Home buyers needing to qualify for mortgage with lower credit scores or need help in fixing your credit to qualify for conventional loan, please contact me at 262-716-8151 or text us for a faster response. Or email us at [email protected] We are available 7 days a week, late evenings, weekends, and holidays as well to answer all of your mortgage questions and help you get a pre-approval.