2016 Conventional Loan Basics
2016 Conventional Loan Basics: Explained
As a new Loan Officer there are two main programs you are going to have to deal with and that is FHA (Federal Housing Authority) Loans which are overseen and regulated by the United States Department of Ubran Development or HUD and Conventional Loans which are overseen and regulated by Fannie Mae and Freddie Mac. In this article, it is going to be all about the Conventional Loans and the 2016 Conventional Loan Basics. Fannie Mae and Freddie Mac are the two Government Sponsored Enterprises or GSE’s that set mortgage lending guidelines for Conventional Loans. GSE’s are by definition a financial services corporation created by the US Government with the objective being to enhance the flow of credit to targeted sectors of the economy while also reducing the cost of credit by reducing the risk. Mortgage Lenders need to ensure they are following the Fannie Mae and Freddie Mac guidelines if they intend on funding Conventional Loans to borrowers and especially if they plan on selling these loans to Fannie Mae and Freddie Mac. You see, after a loan is funded by a lender it takes away from their cash, but they will almost immediately turn around and resell the loan to Fannie and Freddie in order to replenish their cash, so if the loan doesn’t meet Conventional Loan guidelines, there is no way it will be resold either. Conventional Loans are also known as Conforming Loans for these reasons that they must conform with Fannie Mae and Freddie Mac lending guidelines.
2016 Conventional Loan Basics: PMI
In terms of 2016 Conventional Loan Basics any borrower who doesn’t put down at least 20% down payment on a Conventional Loan home purchase is required to have private mortgage insurance. Private Mortgage Insurance known as PMI for short is in place so that in the event a borrower defaults on their conventional loan the private mortgage insurance company will cover part of the loss of the foreclosure to the lender. PMI is similar to the government guaranteeing loans in the event of FHA, VA, and USDA loans. Private Mortgage Insurance can be cancelled once the borrower reaches 80% loan to value either by paying down the mortgage balance or by the home increasing in value and confirmed by a current appraisal.
2016 Conventional Loan Basics: Requirements
Below you will find a list of requirements per 2016 Conventional Loan Basics. These requirements are set by Fannie Mae and Freddie Mac and need to be followed for Conventional Loans
- Minimum FICO Credit Score: 620
- Down Payment: 5% on home purchase or 3% is available for first-time home buyers
- Debt To Income Ratio: 45% (Total monthly debt obligations with the new home payment divided by monthly gross income)
- Non-Occupant Co-Borrowers: Fannie Mae does NOT allow while Freddie Mac DOES
- Mandatory Waiting Periods After Derogatory Credit Items:
- Chapter 7 Bankruptcy: 4 Years after discharge date
- Chapter 13 Bankruptcy: 2 years
- Short Sale or Deed In Lieu of Foreclosure: 4 years
- Foreclosure: 7 years from the recorded date of the foreclosure or the sheriff’s sale date taking the property out of your name
2016 Conventional Loan Basics: Conclusion
As you can see if you don’t know the 2016 Conventional Loan Basics you will have problems getting qualified for a Conventional Loan. As long as you abide by the Fannie Mae and Freddie Mac Guidelines, there is nothing to worry about. If you aren’t 100% sure if the Conventional Loan Program is right for you, please feel free to call me at 888-900-1020, email me at email@example.com, or visit www.loanconsultants.org for more information or an application today!