Fannie Mae Guidelines on Conventional Loans

This guide covers Freddie Mac and Fannie Mae Guidelines on conventional loans. If you are currently shopping for a mortgage or have had a mortgage in the past, you are probably familiar with the term conventional mortgage. In this guide we will detail what a conventional mortgage means. We will cover Freddie Mac and Fannie Mae guidelines and discuss how do you prepare to apply for a conventional mortgage.  John Strange, a senior mortgage loan originator at Mortgage Lenders for Bad Credit says the following about Freddie Mac and Fannie Mae guidelines on conventional loans as follows:

Conventional loans are not backed by any government agency like FHA, VA, and USDA loans. Conventional loans need to meet Freddie and Fannie Mae guidelines. The loans need to conform to Freddie Mac and Fannie Mae guidelines in order fo the two mortgage giants to buy them on the secondary market.

We will guide our viewers through the steps to get pre-approved to buy a home with a conventional loan with Mortgage Lenders for Bad Credit. The qualification and pre-approval process is the most important step of the mortgage process. The number one reason for a last-minute mortgage denial is due to the loan officer not properly qualifying the borrower, In the following paragraphs, we will cover Freddie Mac and Fannie Mae Guidelines on conventional loans.

Fannie Mae Guidelines on conventional loans: Why Conforming Loans Are So Popular

Conventional loans is the most popular mortgage loans in the United States. During the real estate crash of 2008, the federal government took control over the government-sponsored entities (GSEs) FANNIE MAE, and FREDDIE MAC.  Dale Elenteny,  a senior mortgage loan originator at Mortgage Lenders for Bad Credit, says the following about Freddie Mac and Fannie Mae guidelines on conventional loans as follows:

Fannie Mae and Freddie Mac are responsible for the guidelines surrounding conventional mortgage loans. They have standardized guidelines such as loan-to-value, debt-to-income ratios, credit score requirements, tradeline history requirements, and reserve requirements.

Conventional mortgages conform to the maximum loan amounts set by the Federal Housing Finance Administration (FHFA). There is quite a bit of regulation throughout the conventional mortgage world. It is true that a conventional mortgage is slightly more difficult to qualify for compared to an FHA or VA mortgage loan. While the federal government does look over Fannie Mae and Freddie Mac, it is important to understand a conventional mortgage is NOT a federally backed loan such as an FHA or VA.

Freddie Mac and Fannie Mae Guidelines on conventional loans

Basic conventional minimum requirements:

• 620 credit score
• 3% down payment for first-time home buyers
• 5% down payment for repeat home buyers
• Seasoned tradelines on credit report
• Debt to income up to 49.99%
• Reserve requirement

Refinancing VA To Conventional Loans

With the removal of loan limits on VA mortgage loans, we have seen numerous veterans refinance their VA mortgage into a conventional loan to free up their eligibility.

• Having a full $36,000 of VA eligibility on their certificate of eligibility means a veteran can purchase a home without a loan limit
• Many veterans are taking advantage of this low rate environment
• Refinancing out of a VA mortgage on your current primary residence frees up you to buy a new primary residence without a down payment
• Depending on the amount you owe, this step may not be necessary

But if you were a veteran trying to buy a higher-priced home, refinancing your current VA loan into conventional will free up the eligibility required.

Refinancing FHA To Conventional Loans To Eliminate FHA MIP

Refinancing out of an FHA loan to drop private mortgage insurance.

• This may be one of the best times in the history of the 30-year fixed mortgage to complete a refinance if you are currently in an FHA mortgage
• We have seen a steady rising home values across the nation and historically low interest rates put forth by the COVID-19 coronavirus outbreak
• These two factors may allow you to refinance your FHA loan into a conventional mortgage and drop your monthly mortgage insurance premium
• If you are in an FHA loan, there is a good chance you pay monthly mortgage insurance
• While this mortgage insurance is productive and it keeps HUD (The U.S Department of Housing and Urban Development) funded to offer mortgage loans, it is a cost to you
• This monthly mortgage insurance adds up as you continue to pay your mortgage
• If you have a 20% equity position or better, it is time to complete the refinance

Please call Alex Carlucci at (800) 900-8569 to see how much dropping your mortgage insurance can save you on your monthly payment and over the life of your loan.

Freddie Mac and Fannie Mae Guidelines: Starting The Qualification And Pre-Approval Mortgage Process

Applying for a conventional mortgage with Mortgage Lenders for Bad Credit is an easy process.

• The first step is to call Alex Carlucci at 800-900-8569
• Mike will go over your mortgage qualifications during a one-on-one mortgage consultation
• After your initial phone call, a license loan officer in your state will send you an application link
• This link can be filled out on your cell phone or computer
• You will be giving your loan officer permission to verify your credit report

You will then need to send in some required documentation.

Documents Required To Start The Mortgage Process

Depending on your sources of income, the documentation will be different. The most common documentation you need to send in is 60 days worth of bank statements to source the down payment, 30 days worth of pay stubs, driver’s license or government-issued photo ID, last two years of W-2s

Depending on your structure of pay, you may need to send in your last two years of federal tax returns as well. Once your loan officer receives your completed application and the required documentation, they can start work on your conventional preapproval. Remember the guidelines above: these loans are slightly harder to qualify for compared to FHA and VA mortgage financing.

Freddie Mac and Fannie Mae Guidelines: Benefits Of Using Conventional Loans

Advantages to using a conventional loan.

• It is a myth that a 20% down payment is required to use a conventional mortgage
• As a first-time home buyer, you can put down as little as 3% with a conventional loan
• If you are not a first-time home buyer, 85% down payment is required
• These conventional mortgages will have added mortgage insurance that does go away, unlike FHA mortgages
• The fact that your mortgage insurance will eventually disappear can help you save money on a monthly basis
• You may also choose lender-paid mortgage insurance, which is not an option on an FHA mortgage
• This builds the mortgage insurance premium cost into your interest rate
• This usually lowers your overall monthly payment compared to paying monthly mortgage insurance
• Another advantage of a conventional mortgage is the appraisal process
• Most listing agents like to see a conventional preapproval
• This is because the appraisal restrictions are slightly looser compared to FHA and VA appraisal requirements
• If a home needs a little upkeep, a conventional mortgage is usually the route you need to go

For specifics on the difference between an FHA and conventional loans, please see our blog on this topic.

Not All Lenders Have The Same Guidelines On Conventional Loans

Mortgage Lenders for Bad Credit are experts in all mortgage financing, including conventional mortgages. We are up to date on all of our conventional guidelines. There have been some significant changes due to the COVID-19 coronavirus outbreak. Mainly surrounding employment. If you were laid off or furloughed during the pandemic, mortgage lenders must use your year-to-date figures to calculate your income. Alex Carlucci, a senior mortgage loan originator at Mortgage Lenders for Bad Credit said the following about Fannie Mae Guidelines on Conventional Loans:

. It is unfortunate, but these guidelines are very cut and dry. This has stopped many of our clients from qualifying for a home loan. Hopefully we get over this hump soon and everybody is back to work with their normal hours. If you have been turned down for a conventional mortgage, we encourage you to give us a call.

We go directly off Fannie Mae guidelines on conventional loans with no additional lender overlays. For questions surrounding conventional mortgages, please call Alex Carlucci at (800) 900-8569 or send an email to gcho@gustancho.com. The team at Mortgage Lenders for Bad Credit is available seven days a week, even during the holidays. For a faster response, you may also send a text message to (800) 900-8569. With the booming housing market and historic low mortgage rates, this is a great time to buy or refinance a home with a conventional mortgage. We are here to help. We encourage you to call us today.