CONVENTIONAL LOANS & CONFORMING LOANS

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Conventional loan
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This is any loan without government insurance or guarantees also makes up the majority of loans originated for 1-to-4 unit residential properties.
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Conventional loan
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In this loan lenders set their own lending policies and underwriting standards. For these loans, the lenders are only subject to federal and state regulatory agencies.
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Conventional loan
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In this type of loan lenders can establish the types of loans they originate and the types of acceptable properties. They determine acceptable borrower qualifications, maximum loan limits, loan-to-value ratios, and loan fee, but do not lend on cooperatives.
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PMI (Private mortgage insurance)
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It protects lenders against losses that result when a borrower defaults on a loan. (Used mainly in conventional loans with LTV ratios that are higher than 80% and often collected by the lender)
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Automatic Termination of PMI
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Must be done by lender once balance on loan is 78% of property value
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Cancelation of PMI
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This Can only be requested once the balance on loan is 80% of property value
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Conforming loan
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It follows the Fannie Mae/Freddie Mac underwriting guidelines, therefore it can be sold to Fannie Mae.
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Conforming loan
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Also known as an \”A\” paper loan, prime loan, or full documentation loan.
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DTI Ratios For Conforming Loans
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Typically this ratios range from 36% to 45%
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\”A\” paper loan/Prime Loan
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This loan is both conventional and conforming.
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Underwriting guidelines for \”A\” paper loans/Prime Loans
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2 years of tax returns, verification of income, deposits, employment, a high credit score, and a clean credit history.
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Portfolio loan
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A loan which does not follow the Fannie Mae/Freddie Mac underwriting guidelines, therefore it cannot be sold in a secondary market.
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Jumbo loan
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A Loan that exceeds the Fannie Mae/Freddie Mac maximum loan amount. (Because these loans are bought and sold on a much smaller scale, these loans usually carry a higher interest rate and have additional underwriting requirements)
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Non Conforming Loans
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A loan that does not meet the Fannie Mae or Freddie Mac lending guidelines—> Jumbo Loans and Subprime Loans (not accepted by Fannie Mae or Freddie Mac)
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Subprime loan
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A loan that is offered to someone who doesn’t currently qualify for \”conforming \”A\” paper financing\” because of the following reasons: Low credit score or no credit score, income that is difficult or impossible to verify, an excessively high debt-to-income ratio, the purpose of the loan, and property type.
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Subprime loan
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Also known as a \”B\” or \”C\” paper loan.
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Subprime loan
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Typical terms in this loan Higher than market interest rates, higher than ordinary fees, prepayment penalties, interest rates anywhere from 1% to 7% above other loans, origination fees as high as 7% and various junk fees.
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Junk Fee
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A questionable fee charged in closing costs that may not bear any significant relationship to the actual loan transaction
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Typical Subprime Loans
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\”B\” paper loans ( 2/28 ARM and 3/27 ARM)
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\”B\” Paper Loan
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Allows borrowers with less than perfect credit to rebuild their credit and refinance later at a better rate.
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Exploding ARM
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A notorious home loan product offered in the subprime industry, features a teaser rate for which the borrower qualifies even with high debt-to-income ratios.
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Facts about Jumbo Loans
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This loans are non conforming and not accepted by Fannie mae or Freddie mac. usually they have a higher interest rate for the prior reason. In VA any loan over $424,100 is considered [one of these], therefore the borrower will pay 25% in downpayment of the amount that is over $424,100
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Examples of non traditional loans
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this is any mortgage product that is not a 30-year, fixed-rate mortgage this can be conventional loans or government backed loans (fha and va) ARMS Hybrid Loans GPMS

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