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Conventional loans are originated and serviced by private mortgage lenders like banks and other financial institutions. These loans are often transferred to the government-sponsored enterprises, or GSEs, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).

However, neither Fannie Mae nor Freddie Mac directly provide mortgages to homebuyers. Instead, you’ll get your loan from a mortgage lender, such as a bank or financial institution which then may transfer the loan to one of these GSEs, assuming the loan is eligible, post-closing.

Fannie Mae and Freddie Mac hold a majority of conforming mortgage loans.
Fannie Mae was created by the U.S. Government in 1938 amid the struggles of the Great Depression. The goal of Fannie Mae was to create a more reliable source of funding for homebuyers. Freddie Mac, came into existence through an act of Congress in 1970, with a similar purpose. Both Fannie Mae and Freddie Mac now operate under the conservatorship of the U.S. Federal Housing Finance Agency (FHFA). Fannie Mae and Freddie Mac create more affordable financing options and they set or influence the requirements to qualify for most conventional loans.

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. FHA home loans require lower minimum credit scores and down payments than many conventional loans, which makes them especially popular with first-time homebuyers.
You can have a lower credit score: If you haven’t established much of a credit history or you’ve encountered some issues in the past with making on-time payments, a 620 credit score — the typical magic number for consideration of a conventional mortgage — might seem out of reach. If your credit score is 580, you’re in good standing with most FHA-approved lenders.
You can make a lower down payment: FHA loans also give the option for a smaller down payment. With a credit score of at least 580, you can make a down payment of as little as 3.5 percent. If your credit score is between 500 and 579, you may still be able to qualify for an FHA loan, but you will need to make a 10 percent down payment.

Conventional loans are broken down into conforming and nonconforming loans, depending on whether or not they conform to underwriting guidelines set forth by Fannie Mae and Freddie Mac. Conventional loans are sometimes erroneously referred to as conforming mortgages. While there is overlap, the two are distinct categories. A conforming mortgage is one whose underlying terms and conditions meet the underwriting criteria of Fannie Mae and Freddie Mac. The criteria includes: the amount of the loan, the borrower’s credit score and debt-to-income (DTI) ratio, loan-to-value (LTV) ratio, and what documentation is required to verify a borrower’s income and assets.
The maximum loan amount (conforming loan limit) is set annually by the Federal Housing Finance Agency (FHFA). In most of the continental U.S., a loan must not exceed $647,200 in 2022 (up from $548,250 in 2021) to be eligible for Fannie Mae or Freddie Mac financing. So while all conforming loans are conventional, not all conventional loans qualify as conforming. A jumbo mortgage of $1,000,000, for example, may be a conventional mortgage but not a conforming mortgage—because it surpasses the amount that would allow it to be backed by Fannie Mae or Freddie Mac (more on Jumbo Mortgages can be found, below).

VA Loans (Veteran Affairs)

A VA loan offers a zero-down payment mortgage option reserved for eligible veterans, active-duty service members and surviving spouse.

VA loans are partially backed by the Department of Veteran Affairs.

Facts most veterans don’t know about VA loans:

1. They are reusable. You can use your full VA entitlement repeatedly as long as you pay off the prior loan.
2. They are available for your primary residence only.
3. There’s no fixed maximum loan amount. (of course, the borrower must be able to afford the payments)
5. Even at 0% down, there is no monthly mortgage insurance.

If you are a veteran, we at Harborside Home Loans thank you for your service and we look forward to providing you the best and easiest experience using your VA benefits!

FHA Home Loans

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. FHA home loans require lower minimum credit scores and down payments than many conventional loans, which makes them especially popular with first-time homebuyers.

You can have a lower credit score: If you haven’t established much of a credit history or you’ve encountered some issues in the past with making on-time payments, a 620 credit score — the typical magic number for consideration of a conventional mortgage — might seem out of reach. If your credit score is 580, you’re in good standing with most FHA-approved lenders.

You can make a lower down payment: FHA loans also give the option for a smaller down payment. With a credit score of at least 580, you can make a down payment of as little as 3.5 percent. If your credit score is between 500 and 579, you may still be able to qualify for an FHA loan, but you will need to make a 10 percent down payment.

Bank Statement Loans

Traditional loans will generally require W2s, paystubs and/or tax returns in order to verify a borrower’s income. A Bank Statement Mortgage offers self-employed borrowers a different option to verify their income without using tax returns, W2s or paystubs. You might be interested in a Bank Statement mortgage if you are a business owner or independent contractor and your business generates substantial revenue, yet the net income on your tax returns is dramatically lower due to considerable deductions/business expenses.

A Bank Statement Mortgage can be helpful if you’re self-employed and large tax deductions dramatically reduce the net income reported on your tax returns. By looking at bank statements to determine your cash flow, lenders can qualify you based on your bank deposits — rather than the reduced amount they might see listed on your tax returns.

Some owners of successful businesses that generate strong revenue may be turned down for a traditional mortgage yet will qualify for a Bank Statement loan; Others who do qualify for traditional financing will find that they may qualify for a substantially greater loan amount by utilizing a Bank Statement mortgage.

DSCR for Investors

A Debt Service Coverage Ratio (DSCR) loan allows real estate investors to qualify for a mortgage based solely on the anticipated (or actual) cash flow generated from a rental property, and based not on their personal income.

If the actual or anticipated monthly rental income is sufficient to cover the mortgage (principal, interest, taxes, insurance and HOA), then the loan can be approved for financing without the borrower submitting any tax returns, W2s or paystubs.

Because real estate investors often write off expenses to reduce the amount rental income reported for tax purposes, some may not qualify for a conventional loan which requires tax returns. The DSCR loan allows these individuals to qualify more easily. as DSCR mortgage lenders analyze how much an investor can borrower by simply projecting how much income the property will produce and whether that income will cover the loan payments.

Additionally, there is typically no limit to the number of properties already owned or the number of properties financed by a buyer, and no restriction prohibiting titling the property in the name of an LLC – in fact, these loans typically are deeded to the borrower’s LLC at closing.