Conventional Loans
By: Joe Hand
Conventional loans that are mostly used in purchasing a home.
Conventional loans are mostly residential loans which are not insured by FHA or guaranteed by the Veterans Administration. These loans require a minimum down payment and in some instances are insured by private Mortgage Insurance. Conventional loans are separated into two categories: Conforming Conventional: A maximum loan amount of $???,????.00 for occupied single family dwelling. These loans are acceptable for purchase for FNMA and FHLMC.
There are limits for conforming conventional loans. ( Some of these limits are set by the lender so all limits can not be expressed in dollar amounts.
1 Family = $ ???,???.00
2 Family = $ ???,???.00
3 Family = $ ???,???.00
4 Family = $ ???,???.00 Maximum Loan to Value Ratios: ( Please note all lenders have different Loan to Value Rations): So check with you lender for these ratios. 1 Family (owner -occupied) = ? 2-4 Family (owner-occupied) =? 1 Family (non -owner occupied)=? 2-
4 Family (non-owner occupied)=? Non Conforming Conventional: Loans which exceed (limits set by lender). These are either sold to private investor,or kept in the bank’s portfolios. The maximum loan amount and loan-to -value ratios are established by each investors.
Private Mortgage Insurance: Is required on loans with a loan -to-value ration in excess of 80% (set by some lender).Occasionally investors will require mortgage insurance on loans with loan-to-value rations less than 80% depending on the life. Private Mortgage Insurance: Is the guaranty of a private underwriting company which in sures a mortgage lender or his investors against losses due to foreclosure. It is one of the more recent and most effective devices for increasing mortgage loan volume, to the advantage of the entire housing industry.
Modern mortgage insurance dates from the 1930’s when FHA was established. By indemnifying mortgage lenders against loss, such guarantees encouraged the high ratio loan-to value mortgages which enabled families to acquire their own homes for small down payments. In the 1970’s the persistence of the inflationary trends has shown the importance of mortgage insurance in good times as well as bad. Income Ratios: Ratios again depend on the lender and also the private mortgage insurance:
Some of the lender still use the following rations. 25-28% – Total monthly house payment (P&I, taxes,hazard insurance,homeowners association dues, MI) should not exceed 28% of allowable gross monthly income. 33-36%- Total monthly house payment, plus any other recurring monthly obligation that extends beyond 10 month should not exceed 36% of allowable gross monthly income. (Some lenders are even tighter on qualification and my use 6 months instead of 10 months.) Conventional underwriting takes no deductions for social security payments or income tax.
All rates are calculated on gross earnings. The above rations are only guidelines, there will be times that an investor will exceed these ratios in approving mortgage loans. If there are extraordinary circumstances, such as a large down payment or large amount of cash assets remaining after closing, these rations may also be increased. Appraisal and Property: As the security for the mortgage loan, the property is especially important in the total consideration of the loan approval. The primary concern of the investor is the marketability of the property. It should have comments made on any detrimental factors in connection with the area that may affect the marketability. The photos must show the property and the neighbor hood in the same manner that the appraiser stated it to be, with additional photos for any detrimental factors. The subject property as security for the loan, should be without physical deterioration, have functional design and be in conformity with the other properties in the neighborhood. You can visit our site here http://www,cyourad,com for more on conventionals loans.
Neighborhood: Does the subject property conform to the properties in the neighborhood in architectural design, use of the properties and the price? Is the neighborhood growth rate steady or declining, which could affect the marketability? Site: The site must have certain qualities that will attract the typical buyer,such as;
A. Proper zoning classification for the type of construction. Some areas are deed restricted.
B. Lot dimensions need to be adequate in relation to the size of the improvements
C. The utilities, where public or private, must have adequate to service the property.
D. Access to the property for vehicles.
E. Acceptable street improvements typical in the market area.
F. Freedom from encroachments, odors,hazards, or other adverse influences. Flood Insurance: Always check to see if the property resides in a flood hazard area and notify the borrower if insurance is necessary. A proper policy will be needed prior to closing. Remaining Economic Life: The period of time the property can expected to remain in its current use. The term of the mortgage should typically not exceed 75% of the remaining economic life. Market Data Analysis: Recent sale of properties similar to and in close proximity to the subject property should be use. This is especially true when the appraiser indicates the neighborhood has active market. Generally, the comparables should not exceed 3-4 months from the date of sale to the subject property, unless proper comments have been made. When reviewing the comparables, the properties should be similar in age,square footage,number of rooms and amenities to the subject property.
A review of the adjustments is needed to be certain the properties are comparable. Property Value: The appraiser will estimate the market value for the property which should correlate with the values established by the cost approach and the market data approach. The income owner occupied. The appraise will also indicate if any repairs or completion of the subject property is required. This should also be in agreement with the information furnished in the appraisal report.
Article written by
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