Sellens Real Estate Lending

Conventional Loans

 

Conventional Loan Applicants

 

Conventional Loans offer a little higher rates than FHA, but if there is no required Mortgage Insurance, because the Loan to Value is 20% or less, then there is a payment savings.

For example, you buy a home for $100,000, and put $20,000 down, you have no mortgage insurance, either up front, or monthly.

Conventional loans have special qualification rules. They’re a little more strict than FHA and VA. Fannie Mae and Freddie Mac are the purchasers of these loans, once the loans are originated. Therefore Fannie Mae and Freddie Mac set the underwriting guidelines for the loans they purchase.

Most loans today are approved by automatic underwriting systems. These complex systems quickly match the loan facts, to the guideline facts. A big advantage of this system is that compensating factors are easily analyzed. If for instance the borrower has large reserves, the automatic underwriting system will increase the ratios used for borrowers qualifications.

This means that, if ordinarily you’re maximum qualifying income to debt ratio is 45%, you may be allowed a higher ratio, which translates into more borrowing power. Most people seem to want to buy the most they can afford. If that’s the case a little extra DTI ratio can make the difference in getting the loan, or not.

Years ago it was true that getting a conventional loan was less cumbersome or difficult than getting a government insured loan. But that’s not true today. Today you need the same documentation for an FHA loan that you do for a conventional loan.

As far as appraisals go, if you don’t know which loan you’re going to get, then it’s easy to downgrade an FHA appraisal to a conventional appraisal. But if it’s the other way around, the appraiser will have to go back to the property and get more information in order to do the FHA appraisal.

 

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