What Are Conventional Loans?
What Are Conventional Loans?
Conventional Loans are also called conforming loans because they must conform to Fannie Mae and/or Freddie Mac mortgage lending guidelines. Fannie Mae and Freddie Mac are the two mortgage giants in the United States and are in charge of setting conforming mortgage lending standards. For banks and mortgage bankers to be able to sell the conventional mortgage loans they originate on the secondary market, the mortgage loans they originate, process, underwrite, and fund need to meet Fannie Mae and/or Freddie Mac Mortgage Lending Standards. Banks and mortgage lenders use their warehouse lines of credit where they fund the mortgage loans they originate and need to sell these loans on the secondary market in order for them to relieve the warehouse lines of credit so they can originate more loans. In order for the Fannie Mae and Freddie Mac to be able to purchase these mortgage loans banks and mortgage bankers originate and fund, every single of these loans needs to meet their lending guidelines.
What Are Conventional Loans: Mortgage Lending Guidelines For Conventional Loans
Lending guidelines for conventional loans are the following:
1. Mortgage Loan Borrower needs a minimum of 620 FICO credit scores.
2. Maximum debt to income ratio cannot exceed 45% debt to income ratio.
3. Minimum 4 year waiting period after bankruptcy, short sale, and deed in lieu of foreclosure.
4. Minimum 7 year waiting period after recorded date of foreclosure to qualify for conventional loans.
What Are Conventional Loans: Types Of Properties For Conventional Loans
You can qualify single family homes, condominiums, town homes, two to four unit multi family homes with conventional loans. Owner occupied homes, second homes, and investments homes can get financing with conventional loans.
Down Payment Requirements On Conventional Loans
First time home buyers can qualify for a 3% down payment home purchase conventional loans with Fannie Mae. Freddie Mac allows a 3% down payment home purchase conventional loans for home buyers who have not owned a property for the past three years. Home buyers can qualify for second home or vacation home conventional loans with a 10% down payment. Investment homes require 15% down payment. If you need to use potential rental income to qualify for an investment property conventional loan, you need to put 25% down payment and have a 75% Loan To Value and you can use 75% of the potential rental income to qualify for an investment property conventional loan.
Waiting Period After Bankruptcy And Foreclosure For Conventional Loans
We covered the basics of the waiting period after bankruptcy and foreclosure to qualify for conventional loans. However, there are certain rules and regulations with regards to qualifying for conventional loans after bankruptcy and foreclosure. If you had a mortgage part of bankruptcy, the waiting period to qualify for conventional loans is four years from the discharged date of your bankruptcy. Your foreclosure can be recorded after the discharge date of your Chapter 7 Bankruptcy. This new Fannie Mae mortgage lending guidelines became effective last August 2014. Also, the conventional loan program where you can qualify for a conventional loan 2 years after deed in lieu of foreclosure and/or short sale with 20% down payment is no longer in effect as of August of 2014. New Fannie Mae mortgage lending guidelines to qualify for conventional loans after deed in lieu of foreclosure and/or short sale is now four years from the recorded deed in lieu of foreclosure and/or date of the short sale reflected on the HUD Settlement Statement with a 5% down payment.