Conventional Loans

 
See If Your Property Will Qualify for an Appraisal Waiver

DEFINITION:   A Conventional loan is mortgage loan which is not insured or guaranteed by any agency of the state or the Federal Government.  These are loans that are sold to FNMA or FHLMC or held in a portfolio (by a bank or S&L and not sold).  "JUMBO" loans are also considered as conventional financing because they are loans which exceed the FNMA and FHLMC limits.

 

LOAN LIMITSThese are loan limits for FNMA and FHLMC.  These are considered conforming loan limits (conforming to FNMA or FHLMC guidelines).

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County 1 Unit 2 Unit 3 Unit 4 Unit
ALAMEDA $679,650 $870,225 $1,051,875 $1,307,175
ALPINE $463,450 $593,300 $717,150 $891,250
AMADOR $453,100 $580,150 $701,250 $871,450
BUTTE $453,100 $580,150 $701,250 $871,450
CALAVERAS $453,100 $580,150 $701,250 $871,450
COLUSA $453,100 $580,150 $701,250 $871,450
CONTRA COSTA $679,650 $870,225 $1,051,875 $1,307,175
DEL NORTE $453,100 $580,150 $701,250 $871,450
EL DORADO $517,500 $662,500 $800,800 $995,200
FRESNO $453,100 $580,150 $701,250 $871,450
GLENN $453,100 $580,150 $701,250 $871,450
HUMBOLDT $453,100 $580,150 $701,250 $871,450
IMPERIAL $453,100 $580,150 $701,250 $871,450
INYO $453,100 $580,150 $701,250 $871,450
KERN $453,100 $580,150 $701,250 $871,450
KINGS $453,100 $580,150 $701,250 $871,450
LAKE $453,100 $580,150 $701,250 $871,450
LASSEN $453,100 $580,150 $701,250 $871,450
LOS ANGELES $679,650 $870,225 $1,051,875 $1,307,175
MADERA $453,100 $580,150 $701,250 $871,450
MARIN $679,650 $870,225 $1,051,875 $1,307,175
MARIPOSA $453,100 $580,150 $701,250 $871,450
MENDOCINO $453,100 $580,150 $701,250 $871,450
MERCED $453,100 $580,150 $701,250 $871,450
MODOC $453,100 $580,150 $701,250 $871,450
MONO $529,000 $677,200 $818,600 $1,017,300
MONTEREY $615,250 $787,650 $952,050 $1,183,200
NAPA $679,650 $870,225 $1,051,875 $1,307,175
NEVADA $477,250 $610,950 $738,500 $917,800
ORANGE $679,650 $870,225 $1,051,875 $1,307,175
PLACER $517,500 $662,500 $800,800 $995,200
PLUMAS $453,100 $580,150 $701,250 $871,450
RIVERSIDE $453,100 $580,150 $701,250 $871,450
SACRAMENTO $517,500 $662,500 $800,800 $995,200
SAN BENITO $679,650 $870,225 $1,051,875 $1,307,175
SAN BERNARDINO $453,100 $580,150 $701,250 $871,450
SAN DIEGO $649,750 $831,800 $1,005,450 $1,249,550
SAN FRANCISCO $679,650 $870,225 $1,051,875 $1,307,175
SAN JOAQUIN $453,100 $580,150 $701,250 $871,450
SAN LUIS OBISPO $615,250 $787,650 $952,050 $1,183,200
SAN MATEO $679,650 $870,225 $1,051,875 $1,307,175
SANTA BARBARA $625,500 $800,775 $967,950 $1,202,925
SANTA CLARA $679,650 $870,225 $1,051,875 $1,307,175
SANTA CRUZ $679,650 $870,225 $1,051,875 $1,307,175
SHASTA $453,100 $580,150 $701,250 $871,450
SIERRA $453,100 $580,150 $701,250 $871,450
SISKIYOU $453,100 $580,150 $701,250 $871,450
SOLANO $460,000 $588,850 $711,800 $884,600
SONOMA $648,600 $830,300 $1,003,650 $1,247,300
STANISLAUS $453,100 $580,150 $701,250 $871,450
SUTTER $453,100 $580,150 $701,250 $871,450
TEHAMA $453,100 $580,150 $701,250 $871,450
TRINITY $453,100 $580,150 $701,250 $871,450
TULARE $453,100 $580,150 $701,250 $871,450
TUOLUMNE $453,100 $580,150 $701,250 $871,450
VENTURA $672,750 $861,250 $1,041,050 $1,293,750
YOLO $517,500 $662,500 $800,800 $995,200
YUBA $453,100 $580,150 $701,250 $871,450

**Ask about our special Conventional Loan Program that will go to $679,650 in all Counties.




Basic Guidelines for Conventional Loans

FNMA and FHLMC:    The guidelines set forth by both of these institutions are the most widely quoted in the industry today. Lenders of all kind use these rules as a standard for their underwriting criteria.  There is an actual book in which these guidelines are published, it is lengthy and is constantly changing as the laws change or the money supply becomes tighter or looser.                 

JUMBO LOANS:    The guidelines for Jumbo loans vary from lender to lender depending on which conduit the lender sells to.  The best way to determine how to structure a Jumbo loan is to contact your MAE Capital Mortgage management or processing.

INTEREST RATES:      Will vary lender to lender because of reserve requirements of banks as are set forth by the government.  As a general rule Jumbo loans will have a higher rate due to the lack of demand in the secondary market.  For best results regarding interest rates contact a mortgage broker, they will have access to most all the lending sources thus being able to offer the best rates on any given day. 

PRIVATE MORTGAGE INSURANCE (PMI):   Mortgage insurance is required on loans above 80% loan-to-value (LTV) on loans sold to FNMA and FHLMC.  Some adjustable loans can be self-insured by the lender up to 90% LTV.  Mortgage Insurance ensures the lender that if there is a default situation they will be compensated for a percentage of the outstanding loan balance.   There are only a handful PMI companies and their rates are all competitive.  Usually, the lender makes the choice of company for the borrower.  PMI companies will insure loans up to 95%-100% LTV.  Please note that each lender will require a different percent of the loan to be covered by PMI.  In our example, we will show the worst case scenario at each LTV.

 

Click Here to go to the PMI Calculator to calculate an upfront or monthly premium 

DEBT-TO-INCOME RATIOS DEFINED:    Debt-to-income ratios are best defined as the percentage of the house payment to the total gross monthly income, and the house payment plus monthly bills (minimum payments due)  to total gross monthly income.  Thus a front ratio and a bottom ratio respectively.  These ratios may vary from loan program to loan program and from lender to lender.   However, FNMA and FHLMC have established guidelines which the lenders are supposed to follow.

     

QUALIFYING A Borrower:  

THE 4 "C's" to be Approved for a Home Loan:

Credit:  How is the borrower's credit? It is important to take into consideration what they potential buyer's credit score is and how they handle their personal credit.  This will give the underwriter an indication of how they will handle the mortgage payment, whether they will make the payment on time or not. 

Capacity:  The capacity of the borrower is to be able to show the ability to make the mortgage payment.  This is verified by checking the income of the buyer through their tax returns, pay-stubs and regular deposits to their bank account.  The stability of the borrower's job will also be taken into consideration. 
 

Collateral:  Is the amount of down payment or equity that is being put into the house and the overall value of the home.  The house is actually the lender's collateral and the more equity in the home the less likely the borrower will walk away from the home and the loan. The cash the borrower has in their bank accounts and investments is also taken into consideration as the more money left in the borrower's possession after the consummation of the loan the less likely they will default. 

Character:  A borrower's Character will generally be shown by the way they handle the other "C's".  The borrower's character is important to show as the more you can show the borrower's willingness to make the payments the less risk is involved with making the loan.   This is where the borrower's actions with regards to the way they use credit, the way they handle their savings, the length of time in a profession will show an underwriter if they are a good credit risk or not. 


Underwriting Needs To Verify: 

CREDIT: The next step to the qualification process is to check credit.  The borrower must have acceptable credit it doesn't have to be perfect but within reason.  The underwriter makes the final decision on credit so it is best to get it cleared up front.


EMPLOYMENT: Must be able to verify a two-year employment history.  A history may include schooling and maternity leave.  All gaps in employment must be explained.  If buyer is self-employed they must show at least a two-year record (Tax Returns).
 

FUNDS TO CLOSE: Must be able to verify at least a 3-month history of the funds.  Gift funds are acceptable; however, the donor’s funds must also be traced to a source (i.e. bank statements, or verification of deposit).  The borrower must have at least 5% of their own funds to close.

OTHER RENTAL PROPERTY
: If a Borrower has other property that they rent for income, they must provide 2 years Tax Returns, and the income will be calculated from 75% of the gross rents or Actual Rents as Submitted on the Tax Return.

 
CO-BORROWERS: Are acceptable whether or not they are related.  Some lenders require all borrowers occupy the property others do not.  Note also that FNMA requires that the primary occupant's bottom ratio not exceed 45%. 

BANKRUPTCY: As a rule, you need 4 years seasoning on a chapter 7 bankruptcy before you can buy and 2 years for a chapter 13. 

CONVENTIONAL PROPERTY QUALIFICATIONS: A property must meet a minimum standard in order for it to be considered for standard conventional financing.  Property zoning is an important factor, it must be zoned residential or has to be conforming to the area (i.e. it has to be common to the area).  Note the ultimate decision is up to the underwriter.

 
SPECIFICATIONS: Properties should be in areas with paved streets and amenities already in place.  The total land to value should not exceed 40%.   The age of the property is important, it should have an economic life of more than 30 yrs.                          

APPRAISALS: Are good for up to six months after completion.  The cost of an appraisal for single-family  range from $450 to $900, duplex $700 to $1,100, triplex $1,350 to $1,600, four-plex $1,400 to $2,000.  The price ranges due to different fee schedules charged by the different Appraisal Management Companies. 

Loan Comparisons

The difference between a conventional Loan and a Government loan (FHA or VA) is how the loan is insured.  A conventional loan will require private mortgage insurance unless you put more than 20% down on a home or have a 20% equity position in an existing property.  All other documentation requirements these days are the same as government loans.

 

 Underwriting for a Conventional Loans has become very interesting since the financial meltdown and the insurgence of the Consumer Financial Protection Bureau (CFPB).  The financial melt-down uncovered serval areas in lending where fraud was found in a standard Conventional Loans, so in efforts to thwart this activity, additional checks and balances have been put into place designed to protect the lenders from potential loss from illegal activity.  By putting these measures in place lenders are now required to do additional checks of borrowers social security numbers, income, and income history, IRS checks to make sure the tax returns provided to the lenders are the ones the borrower actually filed, and the following of large deposits to a borrower's bank account.  All these measures imposed by the CFPB (the Government) are supposed to be for the protection of the borrower and in effect hurting the buyer's ability to qualify for these loans as irrelevant deductions and personal deals of the borrowers end up hurting them in qualifying.


When applying for Conventional loans be patient we are going to ask for explanations of just about everything you have done with your finances for the last 2 years.  As Originators we know when we have good clients, but these new rules make us check everything so be patient we will be there to help you through the process.

**ASK ABOUT OUR NO ASSET VERIFICATION LOANS.

To Start the Process complete this form.  or Call us at 916-672-6130
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