OVERVIEW OF CONVENTIONAL AND GOVERNMENT LOANS
Loans typically fall into two main categories:
1. Conventional Loans: Loans either purchased by FNMA, FHLMC, or other secondary market mortgage pools, or held directly by financial institutions.
2. Government Loans: Loans insured or guaranteed by the government, such as FHA, VA, and USDA.
The most common conventional loans are “conforming” and “high balance conforming” loans, which follow agency guidelines set forth by Fannie Mae (FNMA) or Freddie Mac (FHLMC).
Conforming Loan Requirements:
• Fico score requirement is a minimum of 620
• Loan limits range from $50,000 - $453,100 but can go as high as $679,650 for a single-family residence if your county is considered a high cost area. San Diego County is $649,750.
• Conforming loans up to $453,100 require a minimum of 3% down payment and high balance conforming loans that range from $453,101 to $679,650 require a minimum of 5% down.
• Loans with less than 20% down require Private Mortgage Insurance. PMI is an additional monthly charge included in your mortgage payment, which protects the lender if the borrower defaults on their loan.
Visit County Loan Limits and Conventional Mortgages Explained for more information on qualifying for a conventional loan.
Non-Conforming Loans (Including Jumbo and Portfolio Loans):
• Fico score requirements vary
• A non-conforming loan is any loan that either exceeds the conforming loan limits, referred to as a “jumbo loan,” or doesn’t fall within Fannie Mae or Freddie Mac guidelines.
• Jumbo loan amounts are available to $2 million, with Super Jumbo loans going up to $5 million.
• Most Jumbo loans are funded by lenders to be sold into pools of loans in the secondary market. The primary requirement for these mortgage pools is that the loans need to have 43% max debt ratios.
• Another type of Non-Conforming loan is when direct lenders (mostly banks) make loans which they keep “on their books” which is why a “portfolio loan” is another name for a type of non-conforming loan. Portfolio loans usually have an adjustable rate feature to them.
To learn more about qualifying for a non-conforming loan click Jumbo Loans explained
• Fico score requirement 500+
• FHA loans range from $294,515 - $679,650 and vary by County. They’re easier to qualify for, requiring only a 3.5% down payment for FICO scores of 580+. If your FICO is 500-579, you will need to put down 10%.
• FHA is a government insured loan. Because of this, FHA loans require two types of mortgage insurance premiums to insure the lender in the event the borrower defaults.
1. Upfront Mortgage Insurance Premium (UFMIP) which is a onetime payment of 1.75% of the purchase price, that can be financed with the loan or paid by a “Lender Credit”
2. FHA also requires Annual MIP (MIP) of .80 to .85% annually which is paid monthly with your mortgage payment.
• FHA loans are less stringent on credit requirements compared to other programs. For example, a conforming loan requires a bankruptcy discharge to be four years old, while FHA only requires two years.
Visit our FHA Loans Explained page to learn more about qualifying for an FHA mortgage
• Best rates for FICO scores of 620, but they may go as low as 500 on a case by case basis.
• Most active duty service members and veterans are eligible for a VA home loan. National Guards or Reserve members with six years of service and un-remarried surviving spouses are also eligible.
• No down payment required, no mortgage insurance, and no maximum loan amounts!
• When the sales price is higher than the county high balance loan limit, the VA loan can be 100% of the home value up to the county loan limit plus 75% of the amount above that.
• VA loans are less stringent on credit requirements. For example, a conforming loan requires a bankruptcy discharge to be four years old, while VA only requires two years.
• First time buyers pay a VA Funding Fee of 2.15% with zero down, which can be rolled into the loan. Veterans that collect VA Disability are exempt from paying the Funding Fee.
• It is possible to buy a home with zero cash out of pocket, by selecting a higher interest rate which offers a Lender Credit that can cover closing costs.
Visit our VA Loans Explained page to learn more about qualifying for a VA mortgage