The Easiest Way to Be Approved For a Conventional Loan
Posted: Oct 26, 2014
According to Investopedia, the conventional mortgage is defined as:
"A type of mortgage in which the underlying terms and conditions meet the FUNDING criteria of Fannie Mae and Freddie Mac... "
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are the largest purchasers of home mortgages at present through mortgage backed securities. Both Fannie Mae and Freddie Mac are government sponsored enterprises or GSEs. In present scenario, if the person is trying to be approved for a conventional loan then one must meet at minimum Fannie Mae's or Freddie Mac's set loan guidelines or FUNDING criteria. Unfortunately, there are other more stringent guidelines being placed on conventional loans by almost every lender providing conventional mortgage loans.
Have you ever been told that person's FICO score was not high enough for a conventional loan or that one must have 20% down for a conventional loan? A minimum FICO score or 20% minimum down for a conventional loan are stricter guidelines placed on a mortgage loan by the lender or bank and are not guidelines set by Fannie Mae or Freddie Mac. What if one could have a conventional loan underwritten to Fannie Mae or Freddie Mac's guidelines with no minimum FICO score requirement with a down payment requirement as low as 5%? This is what person may have when the loan is underwritten to GSE standards with no overlays. There are lenders who will underwrite directly to Fannie Mae or Freddie Mac guidelines with no overlays. The real work for a person is to find them.
Today conventional loans are very popular and it seems every bank or lender has conventional loans available for home purchase loans and refinancing. Despite conventional loans huge popularity, the truth is finding a true or real conventional loan is like finding a needle in a haystack. The reason real conventional loans are hard to find is banks and lenders will underwrite to Fannie Mae's or Freddie Mac's guidelines but then impose their own additional stricter guidelines on top of these guidelines. These additional lender or bank guidelines are often referred to as investor or lender overlays. Both Fannie Mae and Freddie Mac do not restrict the banks and lenders from adding overlays as long as the banks and lenders meet Fannie Mae's or Freddie Mac's minimum guidelines and requirements.
Have person ever played a game where the rules of the game kept changing? It's almost impossible to win when the rules of the game keep changing. Well this is the effect lender or bank overlays have on mortgage loan approvals. They change the rules. What's worse is sometimes these rule changes will surprise and derail a transaction or totally blow it up.
If the person is looking for a mortgage loan for a home purchase or a refinance and one is not having a word with a loan officer, try this exercise. Ask the loan officer what the minimum FICO score that a borrower must have for a conventional loan. Each loan officer will probably respond with a different minimum FICO score number.
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