Conventional mortgage loans are not underwritten to the Government loan guidelines (FHA, VA, and USDA). The majority of Conventional loans are underwritten to Fannie Mae and Freddie Mac guidelines. Lenders such as banks and financial institutions can have their own guidelines. If required, a conventional loan that is above 80% loan to value would be insured by a Private Mortgage insurance company. A conventional loan can be used to purchase or refinance a home.
Currently borrowers that have 20% or more towards the down payment are using conventional loans. A conventional loan can finance up 97% of the purchase price of the primary residence. These loans can be either Fixed or Arm. The post popular ARM loans are 3/1 and 5/1 ARM loans. When dealing with an ARM loan, the first number represents the length the loans interest rate is lock and the second number represents the amount of variance for the interest rate after the fixed rate period. ARM loans are popular but are designed for borrower’s who can afford a fluctuation is the payment. If a borrower plans on refinancing or selling the property in a specific time period than an ARM loan may be a suitable option. When purchasing a second home or investment property, a conventional loan is the only source of financing. A buyer can purchase a second home with as little as 10% down and purchase an investment property with as little as 20% down.
A second home is occupied by the purchaser part-time, will not be rented out, and will not produce additional income. A vacation property and seasonal homes are also viewed as a second home. Due to interest rates being the same as a primary residence and the down payments being less than an investment property, lenders look closely at second homes. A purchaser may try to mask an investment home as a second home which is not allowed. A second home is generally greater than 50 miles from the buyer’s primary residence and qualifies as a second home. A purchaser that is purchasing a second home that is less than 3 hours away from their primary residence must justify the need for a second home.
An investment property is not occupied by the purchaser, can be rented out, and will produce additional income. An investment property tends to have a higher interest rate and tighter requirements. Some lenders have a limit to the number of homes a purchaser can own. Most lenders have a max of 5 properties however Nova Home Loans provides a program which allows a homeowner to own up to 10 properties. Ten properties is currently the maximum amount allowed by Fannie Mae.
If you have had a foreclosures in the past, Conventional Loans will require you, if you had an extenuating circumstance, to wait 3 years form the foreclosure date and put a minimum down payment of 10%. If there was not an extenuating circumstance you will need to wait 7 years from the foreclosure.