This guide covers preparing to qualify for conventional loans versus other mortgage loan programs. Preparing to qualify for conventional loans is often required for some mortgage borrowers who cannot go with an FHA loan. Every home mortgage program has its own mortgage lending guidelines. There are instances where borrowers cannot take out an FHA loan.

Two examples are when a borrower has a prior mortgage included in their bankruptcy. Fannie Mae and Freddie Mac have different waiting period guidelines on conventional loans versus HUD on FHA mortgages when it comes to a mortgage or mortgages included in bankruptcy.

We will discuss this topic in this article. A second reason borrowers need to go with conventional versus FHA loans is if the have very high student loan balances. HUD now accepts income-based repayment (IBR) on student loans in debt-to-income ratio calculations. Fannie Mae and Freddie Mac also allow income-based repayment on conventional loans. In this article, we will discuss and cover preparing to qualify for conventional loans versus FHA mortgages.

Preparing To Qualify For Conventional Loans Versus FHA Loans Due To Prior Mortgage Included In Bankruptcy

There are instances where many consumers will include a mortgage in their bankruptcy. They may no longer be able to afford the home, and the home may not have any equity. Therefore, they want to forfeit the home and include the mortgage in bankruptcy. Fannie Mae and Freddie Mac have different waiting period requirements after bankruptcy and foreclosure than HUD. There are instances where it may take years after bankruptcy to get the housing event finalized. In cases like these, borrowers may need to start preparing to qualify for conventional loans versus FHA loans.

Fannie Mae and Freddie Mac started the four-year waiting period requirement to qualify for a conventional loan from the discharge date of the bankruptcy.

The foreclosure, deed-in-lieu of foreclosure, or short sale can happen after the discharge date of the bankruptcy and does not matter when it comes to qualifying for a conventional loan.  The borrower cannot reaffirm the mortgage after bankruptcy. With HUD, there is a three-year waiting period after the finalization of foreclosure, deed-in-lieu of foreclosure, or short sale if the borrower had a mortgage included in bankruptcy. The discharge date of bankruptcy does not matter.

Non-Occupant Co-Borrower Guidelines on FHA Versus Conventional Loans

Fannie Mae and Freddie Mac allow non-occupant co-borrowers to be added to conventional loans. HUD, the parent of FHA, also allows non-occupant co-borrowers to be added to the main borrowers on FHA loans. To qualify for a 3.5% down payment home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrowers must be related to the main borrower by law, marriage, or blood.

HUD will allow non-occupant co-borrowers who are not related to the main borrower by law, marriage, or blood to become non-occupant co-borrowers.

However, the main borrower must make a 15% versus a 3.5% down payment to qualify. If the non-occupant co-borrowers are not related to the main borrower by law, blood, or marriage, the borrower must qualify for a conventional versus FHA loan. Gustan Cho Associates are experts in helping borrowers prepare for conventional loans versus other loan programs due to having a prior mortgage included in bankruptcy.

Preparing To Qualify For Conventional Loans For Borrowers With High Student Loan Debts

Many professionals, especially those with professional or graduate degrees, have high student loan debts. Student loans remain among the largest barriers to qualifying for a home mortgage. Many professionals, such as dentists, doctors, lawyers, teachers, and government workers, have student loan debt balances of over $100,000. Many government workers, such as government doctors, lawyers, and consultants, have lower salaries but high student loan balances.

HUD accepts IBR payments on student loans. Borrowers not on an IBR payment or repayment plan, HUD requires lenders to take 0.50% of the outstanding student loan balance and use that figure as a hypothetical monthly debt.

Certain lenders, like Gustan Cho Associates, will allow a hypothetical monthly payment that has been amortized over an extended term. This figure needs to be in writing by the student loan provider. This figure can be used instead of 1.0% of the student loan balance. This number normally turns out to be 0.40% to 0.50% of the student loan balance. Fannie Mae and Freddie Mac also accept income-based repayments (IBR payments). Borrowers with large student loan balances on an IBR payment may need to qualify for conventional versus FHA loans.

Qualifying For A Mortgage With A Lender With No Lender Overlays

The team at Gustan Cho Associates are experts in helping homebuyers qualify for a mortgage with no lender overlays on government and conventional loans. Over 75% of our borrowers at Gustan Cho Associates could not qualify at other lenders due to their lender overlays. You can exempt deferred student loans that have been deferred for more than 12 months on VA loans.

With Fannie Mae, Freddie Mac, and HUD, lenders can no longer exempt student loans from conventional and FHA loan debt-to-income ratio calculations that have been deferred for over 12 months.

Gustan Cho Associates, licensed in multiple states, has no lender overlays on government and conventional loans. To qualify for a mortgage with a five-star lender licensed in multiple states with no lender overlays, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.