Mortgage Guidelines on Government and Conventional Loans
In this blog, we will be covering mortgage guidelines on government and conventional loans. Mortgage guidelines on the individual mortgage loan program are set by the FHA, VA, USDA, Fannie Mae, or Freddie Mac. Every agency has its own set of mortgage guidelines.
Mortgage Guidelines on Government-Backed Mortgage Loans
All lenders need to meet the government agency mortgage guidelines if they want the mortgage loan they originate, and fund to be insurable by HUD, VA, or USDA. HUD, the parent of FHA loans, is the most popular mortgage loan program for first-time homebuyers, borrowers with collections and charge-off accounts, homebuyers with derogatory credit tradelines, and borrowers with high debt-to-income ratios. VA and FHA loans have no money-down requirements on home purchases.
The Role of Fannie Mae and Freddie Mac in Mortgage Lending
Fannie Mae and Freddie Mac are the two largest buyers of mortgages in the nation. The role of Fannie Mae and Freddie Mac is to provide liquidity in the housing and mortgage markets by buying funded loans from mortgage lenders. Mortgage lenders need to sell the loans they fund to relieve their warehouse line of credit so they can repeat the process and fund more mortgage loans. Mortgage giants, Fannie Mae and Freddie Mac are two of largest Government-Sponsored Enterprises (GSEs) whose main roles is to provide mortgage and housing market stability and liquidity.
What Is The Relationship Between Fannie Mae and Freddie Mac?
Without Fannie Mae and Freddie Mac, the housing and mortgage markets would like at a standstill since mortgages would not be able to get sold on the secondary mortgage markets.
However, Fannie Mae and Freddie Mac will not purchase any mortgages that do not conform to Fannie Mae or Freddie Mac mortgage guidelines.
What Are Conventional Loans?
Conventional loans are not backed by any government mortgage agencies but need to conform to Fannie Mae or Freddie Mac mortgage guidelines.
What Are Government-Backed Mortgage Loans
There are three different types of government-backed mortgage loan programs: FHA, VA, and USDA. Government-backed loans are insured by the respective federal agencies. FHA, VA, and USDA loans are originated and funded by private lenders. HUD, VA, and USDA do not originate nor fund government loans.
Difference Between Conventional Versus Government-Backed Mortgage Guidelines
HUD, VA, and USDA only act as federal government mortgage insurance agencies. If a home loan goes defaults or forecloses, the government agency will partially guarantee and insure the loss for the lender.
In order for the government agency to partially insure the loss, the lender needs to meet the minimum agency guidelines of HUD, VA, or USDA.
What Are Lender Overlays?
Lenders can have their own independent higher lending mortgage guidelines called overlays. Lender overlays are higher mortgage guidelines above and beyond HUD, VA, and USDA. We will cover Fannie Mae and Freddie Mac’s conforming mortgage guidelines in the next paragraph.
Fannie Mae and Freddie Mac Mortgage Guidelines
What Is The Role of The Consumer Financial Protection Buraus?
How New Mortgage Regulations Affect Consumers
Today’s Volality in the Housing and Mortgage Markets
Mortgage rates, costs, and fees will go up. Now that lenders are 100% responsible for all closing figures, they will have to hedge their rising costs of mistakes, in-house processing, and loans that have to be re-locked. Mortgage closing times will take longer.
Mortgage Guidelines From Start of Loan Application Until Clear to Close
Some say up to 60 days to close on a mortgage loan, which means longer waiting periods. Rush closings and fire sales will have no bearing on how fast they can turn unless the purchase is a cash deal. With cash real estate transactions, the new mortgage guidelines do not apply.
