Conventional loans have traditionally been intended for borrowers with excellent FICO scores, and who plan to put a little more money down. Unlike FHA, VA and USDA loans, they are not backed by the federal government. Nonetheless, they conform to the loan limits and borrowing guidelines that have been set by the government-sponsored enterprises (GSE’s), Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac have recently loosened their lending requirements. Many more people are now expected to qualify for conventional loans because of these far-reaching changes. This is good news for buyers seeking to use a DPA program coupled with a Conventional loan.
Fannie Mae and Freddie Mac have also raised the general loan limits for 2017 in most counties. The 2017 increase is the first change across the board since 2006. The limits for single-unit properties are now:
- $424,100 (Contiguous States, DC and Puerto Rico)
- $636,150 (Alaska, Guam, Hawaii and the U.S. Virgin Islands)
Certain areas of the country are considered high-cost areas and have even higher loan limits. In the same manner, loan limits in high-cost areas have significantly changed and are established for each county (or equivalent). For example, the high-cost loan limit in San Jose, CA is $636,150 and in Richmond, VA it is $535,900.
Complete details about Conventional loan limits can be found at: https://www.fanniemae.com/singlefamily/loan-limitsClick here to get matched with a local lender and find out your local programs & loan limits.
The ultimate home buying goal might be to put 20% down to avoid all forms of mortgage insurances, but that is not always possible. It is very common for homebuyers to buy with an FHA home loan, or with a Conventional loan coupled with down payment assistance (DPA) and then circle back in the future and refinance to drop mortgage insurance once 20% appreciation has occurred.
However, there are now many newer Conventional loan programs that require smaller down payments and either reduced or no mortgage insurance at all, making Conventional programs more popular than ever for first-time home buyers and for people who want to bring little or no money down.
Certain homes might be prohibited from using FHA or VA financing–a Conventional loan might be the only option. Luckily, newer Conventional guidelines now allow for a 3% down payment, and allow that down payment to come from family gift or from a DPA program.
Complete details about Conventional loan programs can be found at: https://www.fanniemae.com/singlefamily/mortgage-productsClick here to see if a Conventional loan program is for you.
Down Payment Assistance
Fannie Mae and Freddie Mac have opened up the possibilities for potential home owners to buy with little or no money down. Some current programs include:
- HomeReady Mortgage (3% down reduced MI for low- to moderate-income home buyers)
- 3% Down Program (3% down reduced MI for any home buyer)
- HomeStyle Energy (designed for home buyers seeking to reduce utilities while buying)
Almost every state has a down payment assistance program that can be paired with a Conventional Loan program. Funds typically come in the form of a federal grant, a local bond program, bank subsidy projects, or a funding initiative sponsored by a local group. Grants are not paid back—it is free money. Some programs are set up as DPA 2nd mortgages, which are typically forgiven at some point in the future (i.e. after living in your home for 5 years, the DPA 2nd is forgiven and wiped away).
Be sure to talk to a qualified local lender who is certified to administer DPA programs in your state and local jurisdiction. Work with a trusted DPA advisor who will listen to your needs and understand your situation. A trusted DPA advisor can present ALL your personal options.