What are Conventional Loans?
There are two major brands of conventional loans: Freddie Mac and Fannie Mae. Both are Government-Sponsored Enterprises (GSEs) that issue automated approvals to borrowers who meet all of the GSEs’ income, credit, asset and property requirements.
Loans that do not fit into the 'conventional' box are considered Non-Conforming loans. This can be for a number of reasons. A typical example of a Non-Conforming loan is a Jumbo loan: this loan has a loan amount that exceeds the conventional loan limit maximum.
Non-Conforming loans are considered riskier therefore are accompanied by higher rates than their conforming/conventional counterparts.
Conventional Mortgage Requirements
Down Payment: 3% at minimum; although see the 1% down program for more details.
Credit Score: below 620 unlikely, above 680 is preferred
Debt-to-Income Ratio (DTI): can go as high as 49%.
Loan-to-Value Ratio (LTV): max 97% Loan Limit
Maximum allowable loan amount= Up to $718,525 in higher cost areas but with most counties the maximum is $484,350
Private Mortgage Insurance (PMI): This is required if the down payment is 20% or greater. The positive is that there are no upfront fee like those required by government loans (VA, FHA, USDA). Your PMI can be paid two ways.
1-BPMI or Borrower Paid Mortgage Insurance is paid monthly by the borrower. This is cancelable after paying it for 2 years AND the Loan to Value ratio proves 78% (22% equity) after an official appraisal has been instigated by the servicer of your loan. (Not necessarily your lender)
2-LPMI or Lender Paid Mortgage Insurance is paid by the lender and passed on to you via your interest rate.
NO disputes are permitted on your credit report.
Documentation required will be required to produce complete documentation of employment history, income, and assets
A few county loan limits:
$718,525: Eagle, Garfield, Pitkin
$561,200: Adams, Araphahoe, Denver, Douglas, Jefferson, Park
Fixed Rate vs. Adjustable (ARM)
FIXED loans are where your mortgage interest rate is fixed for the life of the loan. The life of the loan can be anywhere between 10 and 30 years.
ADJUSTABLE loans are fixed for a specific period of time and then after that time the interest rate will start adjusting annually on a predetermined market index and margin. Fixed period options are 3, 5, 7 and 10yrs.
FHA stands for Federal Housing Administration, the government agency which insures FHA mortgages issued by FHA-approved mortgage lenders. Historically these loans have helped lower income Americans receive home financing. The requirements for FHA mortgages are therefore typically more lenient than those for other loan programs.
FHA Loan Requirements
Down Payment: 3.5% or greater.
Credit: 500+, but typically no lower than 580.
Debt-to-Income Ratio (DTI): up to 50%.
Loan-to-Value Ratio (LTV): min 96.5%
Loan Limit (max allowable loan amount): Up to $636,000 in higher cost areas and as low as $271,050 in lower cost areas. NOT necessarily the same as the conventional loan limit.
Mutual Mortgage Insurance (MMI) is required depending on loan terms and down payment.
FHA approval of property based on appraisal with more strict guidelines than Conventional loan appraisals.
FHA Mortgage Insurance Facts
Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the base loan amount.
Monthly Mortgage Insurance is due on all new FHA loans per the below schedule.
|Loan Term||Original Down Pymt||MIP Duration|
|20, 25, 30 yrs||Less than 10%||Life of loan|
|20, 25, 30 yrs||More than 10%||11 years|
|15 yrs or less||Less than 10%||Life of loan|
|15 yrs or less||More than 10%||11 years|
Manufactured Homes: FHA will insure properties that meet specific guidelines.
Attached and detached single family homes.
2-4 unit homes as long as borrower occupies one unit as a primary residence.
Attached and detached planned unit developments (PUDs).
Search Condominiums that meet FHA approval at this link: https://entp.hud.gov/idapp/html/condlook.cfm
USDA Rural Development Loans are insured by the U.S. Department of Agriculture. They were created by the USDA to provide mortgages to and build the rural housing market by providing an affordable financing incentive. USDA loans have desirable features including 100% financing, however they are only available in USDA-eligible areas and have income caps.
USDA Loan Requirements
Down Payment: None required.
Credit Score: Typically 640 or greater, but 620 with exception.
Debt-to-Income Ratio (DTI): 29 top, 41 bottom
Loan-to-Value Ratio (LTV): Up to 102% financing available, depending on appraisal.
Loan Limit (max allowable loan amount): None. Determined by income and DTI.
30-Year Fixed-Rate mortgages only.
USDA Mortgage Insurance (USDA MI) is required.
Property purchased must be an owner occupied primary residence (no second home, investment, or commercial including commercial farms).
Income & Property restrictions - see below.
USDA Income Requirement
Based on total household income.
Generally must not exceed 115% of the median income of purchase area.
Varies by household size, principal borrower age and more.
Property and land must fall within specified USDA-eligible borders; you can search a specific address HERE:
USDA Mortgage Insurance Facts
Upfront Mortgage Insurance Premium (UFMIP) of 1% the base loan amount.
Annual Premium of 0.35% the loan amount paid monthly along with mortgage payment.
Monthly Mortgage Insurance remains for the life of the loan.
VA loans are insured by the U.S. Department of Veteran Affairs (VA) and provide highly competitive terms for former or active military members. Borrowers must meet minimum qualifications including VA eligibility in order to receive financing.
VA Loan Requirements
Down Payment: None required.
Credit Score: Typically 620 or greater.
Debt Requirement: Generally not to exceed 41%, but varies.
Loan-to-Value Ratio (LTV): Up to 100% financing available.
VA Certificate of Eligibility (COE) required.
Loan Limit (max allowable loan amount): Depends on borrower VA Entitlement (determined when borrower requests VA COE) and region.
No Mortgage Insurance (MI) required.
Property purchased must be an owner occupied, primary residence (no second home, investment, or commercial properties). However, it is possible to have 2 simultaneous VA loans. See here.
Borrowers are eligible if they have if they have Served 90 days minimum during wartime OR have Served 180 days minimum during peacetime.
Other eligible groups
Un-remarried surviving spouses or spouses of POW or MIA service person.
Service personnel on active duty (181 days minimum, or 90 if served during Gulf War).
Selected Reserves and National Guard with 6 years of minimum service in an active unit, unless discharged for disability connected to service.
Specific United States citizens who have served in the military of a government allied with the United States during WWII.
Public Health Service officers, cadets of the United States Military, Air Force, Or Coast Guard Academy.
Midshipmen at the United States Naval Academy.
Officers of the National Oceanic & Atmospheric Administration.
Merchant seaman with WWII Service.
Dishonorably discharged veterans are not eligible.
The borrower's COE from the VA may be requested online by visiting the benefits department of the VA at VA Link to get COE.
What are Jumbo Loans?
Jumbo loans are loans that exceed the regulated loan limits for a specific county. In most areas, loans larger than $424,100 will be considered Jumbo. High-cost county loan limits vary, but any loan exceeding those limits is a Jumbo loan. For example, Pitkin, Garfield & Eagle counties have a limit of $718,350 ... Jefferson county is $561,200 and Boulder county is $626,750
Jumbo Mortgage Requirements
Because Jumbo loans are so large, they are often accompanied by strict income, credit, down payment, and debt standards. These standards will vary from lender to lender and become more stringent with greater loan amounts.
Down Payment: 20% or greater, but may vary depending on assets.
Credit Score: 620 or greater
Debt-to-Income Ratio (DTI): 45% or lower
Loan-to-Value (LTV): 80% or lower, but may vary.
Reserves required, rainy day money, vary from 6mths to 2yrs worth of your PITIA (principal+interest+property taxes+insurance+Assessments/HOA dues)
Complete documentation of employment history, income, and assets.
Jumbo loans do not require mortgage insurance because their down payment requirements are so high.
Non-Warrantable is a classification assigned to a property. This is determined by details relating to the property/HOA itself.
In order to secure conventional or government financing, the property MUST BE warrantable!
So the important thing to remember is, find out this information sooner than later! This will absolutely be a deciding factor in the loan products available to you for financing.
Conventional and government (FHA,USDA,VA) loans are NOT available for non-warrantable properties.
Example reasons the property may fail the Warrantability test are ... there is greater than 50% of investor occupancy in the project as a whole ... or maybe one owner owns more than 10% of the units ... or maybe there is pending litigation ... or maybe there is more than 20% of commercial tenants in the building ... and more.
All of the determining factors are revealed by the HOA completing the standard Fannie Questionnaire HERE
For the non-warrantable characterics, go HERE
A sample lender questionnaire with helpful line item details can be found HERE.
Because a non-warrantable property is considered to be more risky of an investment for the lender, the rates and terms for these loans will not be in the same class as lower rate and better termed Conventional mortgages.
Most likely you will be looking at an ARM, an Adjustable Rate Mortgage on a non-warrantable property as the 30yr products come with steep interest rates ... and really are few and far between.
This loan allows you to leverage your cash flow with your mortgage. What comes to mind are clients who hold mortgages, yet actually have the money in the bank ... and earning less than their mortgage interest rate. This loan product gives them the ability to forego paying that mortgage interest but still remain basically liquid ... and with no 'refinancing' effort for the next 30 years. Simply dreamy.
This is available on both primary and secondary residences on purchases, rate/term & cashout refinances.
This is a 30yr line of credit with a maximum available up to $2.5 million.
The floor is 3.75% with a cap of 6% over the initial fully indexed rate.
This rate fluctuates with the one month LIBOR with a 3.75% margin.
April 2017 rate is 4.732%.
The monthly payments required are interest only.
All payments/deposits are applied to principal first, then interest.
minimum FICO of 700 required
minimum of 10% of loan amount in cash reserves required
less than or equal to 43% Debt to Income ratio
the All In One Loan so powerful ... because is not a mortgage at all, but instead, a home equity line of credit. Lines of credit are unique because they are flexible, two-way instruments allowing you to apply as much money as you desire toward the balance without losing access to your funds. The All In One Loan provides 30-year access to home equity dollars, has a great low rate, and no hidden fees or required balloon payment.
Additionally, the All In One Loan works just like an ordinary checking account. Yes, home finance and personal banking are bundled together!
This revolutionary design allows you to use your everyday cash flow to offset your loan’s balance and save mortgage interest without requiring a change to your budget.
Deposits made into the All In One Loan pay down principal first and remain available 24/7 through the banking features. The loan comes with ATM cards for all users of the account, secured online bill-pay, unlimited check writing, direct deposit and bank-to-bank wire transferring. Your monthly interest payments are computed on each day’s ending balance, so even as you withdrawal money from your account for regular expenses, your loan’s daily balance is kept lower for longer - and that equates to less interest being charged than with a conventional mortgage.
In effect, you avoid having to pay more interest on your loan using your regular cash flow than what you could typically earn on those dollars in a regular checking account. Less of your money spent on monthly mortgage interest means more of your money left over to help you meet other financial objectives.
AIO Simulator link http://www.aioloan.com/
All conventional loan products are available for most of the deed restricted housing in resort towns. And although this is a statement of truth, not all lenders are willing to lend on these properties. Teree Johnson can. Her email is TLJ@AspenLendingGroup.com
These properties can NOT be financed with VA, FHA or USDA loans unfortunately.
Are you selling a deed restricted property & in turn buying a new primary residence?
As we all know, the timing factor is usually not conducive to someone selling their current deed restricted property in the morning and buying their new property in the afternoon. However, this is usually the requirement in order to avoid having to go through two loans. But not anymore! Teree Johnson can do one conventional loan; one and done.
Teree's email is TLJ@AspenLendingGroup.com