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Conventional Loans Defined

In our next series of blog posts, we will define the most common types of mortgage loan programs available to the consumer.  Mortgages can be defined as either government-backed or conventional.  Mortgages not guaranteed (or insured) by Government agencies such as the Federal Housing Administration (FHA), the Department of Veteran Affairs (VA) or the US Department of Agriculture (USDA) are known as conventional home loans.

Conventional loans are guaranteed by private lenders such as banks, credit unions or mortgage companies, or by government-sponsored enterprises (GSEs) such as Freddie Mac and Fannie Mae.

Conventional loans represent approximately two-thirds of the home loans issued in the United States.  Conventional loan guidelines are currently as follows:

CREDIT SCORE

MINIMUM 620

MAXIMUM LOAN AMOUNT

$453,100

MINIMUM DOWN PAYMENT

5%

TERMS

10, 15, 20 OR 30 YEARS

INCOME/DEBT RATIO

28% HOUSING / 36% TOTAL DEBT

SELLER CONTRIBUTIONS

2% OF SALES PRICE INVESTMENT PROPERTY

3% OF SALES PRICE LTV 90.01-95%

6% OF SALES PRICE LTV 75.01-90%

9% OF SALES PRICE LTV 75% OR BELOW

  • For Loan-to-Values above 80%, there will be PMI. The higher the down payment, the lower the PMI.
  • 5% must be from the borrower’s own funds
  • Funds to close may come from a secured loan. The terms and monthly payment amount must be verified and included in the total debt ratio.
  • Funds may come from a sell of an asset (automobile, boat, etc.).  Must document ownership and value of secured item. Require copy of bill of sale and proof of funds received.  A gift from a relative may be used as long as the first 5% is the borrowers own documented funds.