I’m writing this article for those of you that are either curious or unsure of your ability to qualify for a conventional home loan.
Lenders will sometime impose additional requirements, making it harder to qualify. If you need an exception that can be found below, but your current lender or mortgage broker isn’t offering it, please contact me for help.
Conventional loans are not issued or guaranteed by the U.S. Government, but rather by private lenders. They are loans that require private mortgage insurance unless you have a 20% down payment – the private mortgage insurance covers anything over the 80% that the lender is putting at risk by giving your the loan.
A Conventional loan that conforms to certain loan amount limits is considered a conforming loan.
Lenders sell conforming, eligible loans to Fannie Mae and Freddie Mac whenever they need to replenish their cash reserves - this is known as the secondary market.
Below is a table showing the maximum 2016 conforming limits for Utah mortgage loans, dependent on County location (these increased limits are valid starting January 1st, 2017):
While still conforming, some loan requirements for these higher amounts will be slightly different – they fall under the loan program category called “high balance conforming”.
As a side note, loans that exceed any conforming limits are ineligible for sale to Fannie Mae and Freddie Mac – they are called jumbo loans, and you can read about them in a different article.
The following Utah Conventional Mortgage Loan Eligibility Matrix is based on: occupancy status, loan to value (LTV) and credit score requirement.
I’ve addressed the following issues: credit history, co-signing debt, qualifying rations, income, non-occupying co-borrowers, gift funds, non-arms length transactions and interested party contributions.
Feedback is highly encouraged, so please send your e-mails with comments or questions to firstname.lastname@example.org
Having to foreclose on a home is a lender’s worst nightmare. It a lengthy and costly procedure for both parties involved, and it should be avoided whenever possible.
In Utah it takes approximately 120 days to complete an uncontested non-judicial foreclosure on a home loan, a process that can be delayed if the borrower contests the action in court, seeks delays/postponements of the sale, or files for bankruptcy.
If you were unfortunate enough to experience a foreclosure on your home, the waiting period before becoming eligible for a conventional loan is as follows:
Definition: Extenuating circumstances
– death of the primary wage earner
– long term illness or disability not covered by insurance
– prolonged loss of employment for reasons out of the borrowers control (such as site closings or mergers)
Chapter 7 or 11 waiting period:
⁃ financial mismanagement: 4 years
⁃ extenuating circumstances: 2 years
Chapter 13 waiting period:
⁃ financial mismanagement: 2 years from discharge
4 years from dismissal
⁃ extenuating circumstances: 2 years from discharge or dismissal
Multiple bankruptcies: 5 years waiting period
Pre-foreclosure/ Deed-in-lieu/ Short Sale
Restructured or Modified loans
Ineligible to refinance on the subject property.
On other properties than the subject property:
Major adverse credit
Disputed trade lines
Re-establishing credit history
A borrower is considered responsible for the full payment on a co-signed debt, even if he/she is not actually the person making the payments. New guideline updates state that a mortgage liability can actually be excluded if it can be documented that another person has been making the payments on time for the past 12months.
An outstanding debt that was assigned to another party by court order (such as a divorce decree or separation agreement), and the creditor does not release the borrower from liability, the debt may be excluded from the borrowers monthly debt obligation if a copy of the applicable pages from the court order, and evidence of the transfer of ownership (if applicable) is provided.
Maximum Qualifying Ratios
New guideline updates now allow 50% debt to income ratios even without compensating factors (excellent credit, large amounts of assets etc)
Income from: commission, tips, bonuses and overtime must be verified with two years past tax returns; this also applies to part-time and second jobs, along with the requirement that the income has been uninterrupted.
Rental income is fully recognized if verifiable with two years past tax returns; one year is usually considered if a current lease agreement is provided, and there are other compensating factors.
If the borrower is converting his primary residence into a rental (investment) property, he will have to qualify in full for both mortgage payments unless the following can be provided:
In this case, 75% of the rental income can be used to qualify; note that rental income from a family member is not allowed.
On multi-unit purchases meant as a combination of primary residence and investment property, rental income will only be considered if landlord experience can be verified (typically 2 years).
Declining income will not be averaged; most recent and lower income will be used to qualify.
Non occupant co-borrower
• Must be an immediate family member
• Borrower must qualify at 35/43 debt to income ratios
• Maximum loan to value has to be the lesser of 90% or minimum program guidelines
• If the loan to value exceeds 80%, at lear 5% has to come from the borrowers own funds
• Non-occupant co-borrowers are not allowed on cash-out refinances.
Permitted only on primary residence and second homes, not on investment properties
Must be accompanied by proper documentation – download Gift Letter Sample below.
Gifted equity is allowed on primary residences.
Non Arms Length Transactions
• A non-arms length transaction occurs when there is a business or personal relationship between the borrower and the builder or seller; it has to be disclosed, and it is only allowed on primary residences.
• It is not allowed on a short-sale when seller and buyer are related, and not allowed as means to bail out the current owner from an existing delinquent mortgage.
Interested Party Contributions
Apply online now to get started on your conventional loan or of you need a Pre-Qualification Letter to make an offer on a home (available within a couple of hours from receipt of application).
Use the download button below to access a complete checklist of documents needed during the process.
Don’t have a full down payment saved up just yet? Check out the Utah Down Payment Assistance Programs blog post – you might be in luck.
Have a fast and smooth closing on your Utah Conventional mortgage loan!