Conventional Loans

by martyna
Conventional Loans

Conventional Loans are the most popular home mortgage program in the U.S.

  • Conventional Loans are often referred to as conforming loans
  • Conventional Loans are not backed by a government agency like FHA, VA, USDA loans
  • Private lenders and banks originate and fund conventional loans
  • Lenders use the funds from their warehouse lines of credit to fund conventional loans
  • However, all lenders want to sell the conventional loans they fund to the secondary mortgage bond market, which is normally Fannie Mae and/or Freddie Mac
  • In order for Fannie Mae and/or Freddie Mac to purchase conventional loans from lenders, the loans need to conform to Fannie and/or Freddie Agency Guidelines
  • If the loans do not conform to Fannie Mae and/or Freddie Mac Agency Mortgage Guidelines, then Fannie and Freddie will not purchase them
  • Once the lender sells the loans to Fannie and/or Freddie, they use the proceeds to pay down their warehouse lines of credit so they can repeat the process of originating and funding more loans
  • Unlike government loans, you can finance second homes, and investment properties with conventional loans

Capital Lending Network, Inc. has no lender overlays on conforming loans. CLN just go off the minimum agency guidelines of Fannie Mae and/or Freddie Mac.

Fannie Mae And Freddie Mac Agency Guidelines On Conventional Loans

Conforming loans have slightly higher credit standards than government loans.

What are the Fannie Mae And Freddie Mac Agency Guidelines On Conventional Loans

  • However, there are many benefits with conventional versus FHA loans
  • This holds true for borrowers with large outstanding student loans, borrowers who need a mortgage in community property states, and those who had a prior bankruptcy included in bankruptcy
  • Fannie Mae and Freddie Mac allow Income-Based Repayment (IBR) on conventional loans
  • FHA, VA, USDA loans do not allow IBR payments

The following are the minimum lending guidelines on conventional loans:

  • The borrower needs a minimum credit score of 620 FICO
  • Second homes and investment property financing are allowed with conventional loans
  • The maximum loan limit on conforming loans in regular non-high-cost areas is capped at $510,400
  • The maximum debt to income ratios on conforming loans is capped at 50% DTI to get an approve/eligible per automated underwriting system (AUS)
  • There is a four year waiting period after Chapter 7 Bankruptcy discharged date, deed in lieu of foreclosure, short sale
  • There is a four year waiting period after Chapter 13 Bankruptcy dismissal date
  • There is a two year waiting period after Chapter 13 Bankruptcy discharged date
  • There is a seven year waiting period after a standard foreclosure to qualify for a conventional loan
  • There is a four year waiting period after a deed in lieu of foreclosure and/or a short sale
  • Private mortgage insurance is required if the loan to value is higher than 80% LTV
  • Private mortgage insurance can be dropped once the homeowner’s loan to value drops below 80% LTV

IBR payments are allowed on conforming loans unlike other loan programs.

Cases Where Borrowers Need To Go With Conventional Versus FHA Loans

If the borrower had a prior mortgage included in a bankruptcy, the waiting period to qualify for a mortgage is four years from the discharged date of bankruptcy.

What are the cases where borrowers have to use conventional loans versus FHA loans

  • The date of the foreclosure, deed in lieu of foreclosure, or short sale date does not matter even though it has happened after the discharged date of bankruptcy
  • However, the mortgage included in bankruptcy cannot be reaffirmed for this rule to take effect
  • With FHA Loans, the waiting period start date is the final date of the housing event
  • The discharged date of the bankruptcy does not matter
  • Therefore, there are times when homebuyers need to go with conventional versus FHA loans
  • There are nine community property states in the nation
  • HUD requires the non-borrowing spouse’s debts to be included on FHA Loans
  • However, the non-borrowing spouse’s debts does not have to be included in debt to income ratio calculations on conventional loans
  • HUD does not accept income-based repayment plans when the mortgage underwriter is calculating debt to income ratios on FHA loans
  • HUD wants mortgage underwriters to take 1.0% of the outstanding student loan balance and use it as a hypothetical monthly debt
  • This includes on zero payment deferred student loans
  • However, Fannie Mae and Freddie Mac allow IBR Payments to be used on conventional loans
  • This holds true for zero IBR Payments

Capital Lending Network, Inc. are experts on conventional loans. CLN has no lender overlays on conventional loans. CLN just go off the automated findings of the automated underwriting system with zero lender overlays. This holds true on primary owner-occupant homes, second homes, and investment properties.