Conventional Loans

Conventional Home LoanConventional loans are mortgages made by private lenders, such as mortgage companies, banks, and credit unions. You have no doubt heard about conventional loans as they are the leading option on the market representing some 70% of all home loans in the United States! There are two distinguishing attributes of conventional mortgage loans: they are not insured by a government agency, and the size of conventional loans cannot exceed conforming loan limits set by the Federal Housing Finance Agency (FHFA).

While traditional conventional loans require a 20% down payment, there are now conventional loan programs that require as little as 3% down. Borrowers will need to pay for mortgage insurance until you reach 20% equity in the home. In terms of credit score, borrowers will generally need a FICO score of 680 or higher.

Conventional loan borrowers have the choice of opting for either adjustable-rate (ARM) or fixed-rate loans, depending on their plans for the property. While many folks prefer the reliability of a fixed rate that stays the same over the life of the loan, some will choose an adjustable rate if they want to take advantage of the lower rate and don’t plan on staying in the house long enough to be at risk of seeing their payment increase.

Borrowers who are refinancing also often choose conventional loans to save money compared to their existing mortgages. For example, FHA borrowers may transition to a conventional loan in order to eliminate mortgage insurance while getting a better rate.

Another key benefit of a conventional loan is its flexibility to be applied to many kinds of properties. Conventional loans can be used to finance a primary residence, a second home, or a rental property.

Why are conventional loans so popular? Borrowers gravitate to conventional loans because of lower interest rates, fast loan processing, diverse down payment options, varied term lengths on fixed-rate mortgage, and reduced private mortgage insurance.

Are you looking to take out a conventional loan? RLG has the tools and resources at its disposal to get you on your way and not waste a moment of your time. Call us today to learn more and experience firsthand the dedicated, personalized customer service and undivided attention that RLG has to offer!

Current Conventional Reserve Guidelines

mortgage reserve guidelines

mortgage reserve guidelinesTo get a handle on mortgage reserve guidelines, one needs to understand what liquid financial reserves are and what purpose they serve. Simply stated, liquid financial reserves are funds or assets that are easily converted to cash and available to the borrower after the mortgage closes. These savings are seen as an emergency fund to mitigate the risks of a mortgage default in the event of financial hardship. There are several sources of liquid reserves accepted by lenders, including:

  • Checking or savings accounts
  • Stock or bond investments
  • Certificates of deposit
  • Trust accounts
  • Money vested in a retirement savings account
  • The cash value of a vested life insurance policy

Financial reserves are calculated based on the total amount of liquid assets remaining after the loan transaction closes, divided by the total monthly housing payment amount, including principal and interest, property taxes, insurances, and any association dues (in the financial industry, these five factors are referred to by the acronym PITIA).

Lenders may have different requirements on the numbers of months your cash reserves should cover. For conventional loans, they may require up to six months’ worth of mortgage, depending on credit score, debt-to-income (DTI) ratio, loan-to-value (LTV) ratio, and number of units. The required liquidity will also depend on the number of other financed properties the borrower currently owns.

If the borrower owns multiple financed properties, additional reserves must be factored in for financed properties other than the subject property and the borrower’s principal residence. Pursuant to Fannie Mae’s underwriting guidelines, the reserve amount will then be determined by applying a specific percentage to the aggregate of the outstanding unpaid principal balance (UPB) for all mortgages and HELOCs disclosed on the online loan application.

It is important to stress, however, that not all borrowers need to produce a cash cushion. Those that qualify for certain loan types or are buying a single-family home they plan to live in will often be exempt from liquid financial reserves.

At Ridge Lending Group, our goal is to help you grow your real estate portfolio and help you navigate through all the intricacies thereof. For more terrific tips, subscribe to our YouTube channel. Have a question regarding investment properties? Call us at 855.747.4343 or send an email to info@ridgelendinggroup.com. Also, visit our website for any additional questions related to investment property funding and real estate investing.