Massachusetts Conventional Loan Basics
Massachusetts Conventional loans are easy to define and they are loans that are not guaranteed by the federal government. Typically, these loans still follow the same guidelines as Fannie Mae and Freddie Mac.
To help understand which loans follow the same criteria, they have divided conventional loan programs into two main categories; conforming-meaning they conform to the same guidelines as Fannie Mae and Freddie Mac, whereas, non-conforming meaning they do not conform to the same guidelines.
There are no set rules that that apply to all conforming loan programs, but as a rule of thumb you should plan to have at least 5% for a down payment for a primary residence, and up to 25% Loan-to-Value (LTV) for non-owner or investment properties, depending on whether you are refinancing, doing a cash-out or debt-consolidation loan.
Another important thing to keep in mind when you are purchasing a home and you have a down payment of less than 20%, you will be required to pay Private Mortgage Insurance, also known as PMI.
PMI is an insurance that compensates lenders for the risk of lending to borrowers with small down payments. PMI does not directly benefit the borrower in this case (with exception to allowing them the option to purchase with less money as a down payment).
A few Requirements in determining qualification for Massachusetts Conventional Loan
- Your monthly housing costs must meet a specified percentage of your gross monthly income (28% ratio).
- FICO credit score must be at least 620 or higher and is usually required to obtain an approval.
- You must have enough income to pay for housing costs as well as any additional monthly debt (43% ratio).
Keep in mind that these are just a few things that lenders take into consideration when pre-approving borrowers for a conventional loan.
About Cape Cod Conventional Loans
According to Wikipedia:
In the United States, a conforming loan is a mortgage loan that conforms to GSE guidelines.
In general, any loan which does not meet guidelines is a non-conforming loan. A loan which does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan.
Starting in 1970, Fannie Mae was authorized by the United States Government to purchase residential mortgage loans. Fannie Mae worked with Freddie Mac to develop uniform mortgage documents and national standards for what would come to be known as a conforming loan.
The Office of Federal Housing Enterprise Oversight (OFHEO) set the criteria on what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy. Criteria include debt-to-income ratio limits and documentation requirements.
The maximum loan amount is set based on the October-to-October changes in median home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it. This is because both Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less.
The Federal National Mortgage Association also referred to as Fannie Mae was founded in 1938, a remedy for the failure of the housing market that took place during the Great Depression. The Congress then created the Federal Home Loan Mortgage Corporation in 1970 that is now referred to as Freddie Mac, to compete with Fannie Mae.
Freddie Mac and Fannie Mae are not loan originators, they purchase mortgage loans from approved lenders on the secondary market in order to provide liquidity with banking institutions.
Massachusetts Mortgages that are purchased by either Fannie Mae or Freddie Mac are considered as conforming or conventional loans; conventional loans are not guaranteed or insured by the Federal Government. Usually any loan that is not VA, USDA, FHA, are usually a Freddie Mac or Fannie Mae.
Massachusetts Conventional mortgages are loans that are underwritten and insured by private lenders and investors. Different from the FHA or Department of Housing and Urban Development loans that receive backing and insurance from the government. With conventional mortgages, lenders are usually the ones who take a risk, such as defaults, having no safety nets for the lenders makes the requirements stricter.
Cape Cod Conventional Loan Benefits
Conventional loans typically provides another type of loan product that makes it possible for a borrower to buy or refinance a home. This type of loan offers a borrower several advantages, just like most traditional loans it is based upon a borrower’s credit score.
The Cape Cod Conventional Loan offers benefits such as:
Lower fees – conventional loans usually offer lower fees than other loan products, being that the lenders are the ones setting the rates. Conventional Loans are also recognized by the Federal Housing Authority (FHA) for offering lower closing costs than government-backed loan products.
Rates – A borrower with a good solid credit score can secure a lower rate since the lenders base the offered rates on a person’s credit score.
Supplemental Collateral Option – Instead of a collateral with the property mortgaged, lenders may allow a borrower the option of a supplemental collateral making this a benefit of limited access to credit.
Private Mortgage Insurance
There are many advantages with a conventional loan, for instance, if the borrower is not able to get approved for a Private Mortgage Insurance (PMI) (an insurance that protects the lender from taking on a financial loss due to defaults on a loan), the lender is able to increase the interest rate in order to compensate this potential risk.
Closing Costs
With the ability to increase interest rates on a conventional loan, the lenders are also able to fund a portion or even all of the funds of the closing costs needed if the borrower is not able to, and in return they can increase the interest rate in order to do this for the borrower.
Requirements of Massachusetts Conventional Loans
Down Payment Requirements
A down payment requirement of a conventional loan is usually based on an individual’s credit score and the location of the home as well, with the required down payment ranging from 5% to 25% of the greater of either the purchase price or the appraised value.
Required Debt-to-Income (DTI)
Borrowers must have a DTI of 43% or less for a Conventional loan.
Credit Requirements
Credit score requirements range from 640 to >740, and interest rates, LTV and occupancy type are a few of the elements that credit scores play a factor in determining.
Documentation
Borrowers must present employment history, assets, proof of income, salary history (pay stubs) self-employed applicants may need to present copies of tax returns and/or bank statements to show for profits and losses.
Loan-to-Value Ratio (LTV)
The borrower can secure a ratio of 95% with a minimum down payment of 5% required in order to do so.
Eligible Property/Residence Type
A conventional loan can be used for several different types of properties such as: condominiums, planned unit developments (townhomes), modular homes, manufactured homes, and up to 4 family residences.
In addition to this, a conventional loan is also available in financing a primary residences, secondary homes, or investment properties.
Massachusetts Conventional Home Loans
