Conventional loans are the gold standard in the mortgage industry. The reason this is so is because every lender views all loans based on risk factors. The purpose of this article is to show you why you would want to apply for this type of loan through 7th Level Mortgage. 7th Level Mortgage is an award winning Mortgage Company and the owner has a plethora of experience in all types of lending.
However, if you do not qualify for this type of lending, one can always be moved from a conventional conforming loan into an FHA loan. After showing only one year of consistent timely payments on your FHA loan and as long as there are no other credit issues and the home appraises within conventional conforming guidelines as well as what the market and comparable properties in the area, being refinanced into this loan will be a simple process. I recommend going back to 7th Level Mortgage because they already will have your information and file on hand. The following are the guidelines for the process and approval for a conventional loan.
The home must be appraised and the allowable limit is no more than 95% loan to value for a purchase and no more than 90% in the case of a refinance. All loans that show an LTV greater than 80% will incur a monthly private mortgage payment whether it be a purchase or a refinance. Keep in mind that as a result of having the PMI as part of the monthly payment, the total payment will be included to calculate the debt to income ratios.
Debt to Income Ratios
The maximum front end debt to income ratios is no more than 36%. This includes principal, interest, taxes, homeowners insurance and home owners association fees (if you are purchasing a condominium or in a planned unit development). The back end debt to income ratios cannot exceed 43%. This ratio includes all of the above as well as any recurring monthly payments. These include automobile payments, credit card payments as well as any child support payments you have been ordered to pay on a monthly basis. As I indicated in the first paragraph, all lenders view all loans based on risk. Because conventional conforming loans are offered by private investors and are not backed by the government, there is more inherent risk with a conventional loan.
Another factor that every lender looks at is your credit score. Because there are three repositories that a lender views, the score that they utilize as to the credit worthiness of a borrower is the median credit score. This score is a much better reflection of you have handled credit in the past. If they were to use the lowest score, you could be declined credit based on errors and on items that should have been removed from the report. If they use the highest of the three scores, they could be over estimating your ability to repay the loan. Make sure your credit file is in order. Do NOT take out new credit cards, automobile loans or other credit while you are in the application, processing or underwriting process.
If there are any extenuating circumstances that you are encountering like a job change, adding a borrower to improve and enhance your chances of being approved, please let the loan officer know immediately. That way he can get this information to the processing department. Do NOT send in documentation like W2’s, the application or any supporting documents with white out to make corrections. Simply, line out and initial the incorrect information and write in the corrected information. To bolster cash out refinance, please send in a letter explaining what the cash you will receive be used for. This explanation will tell the loan officer, processor and underwriter why the cash is needed and could sway the underwriter to approving the loan.
When you go to closing be prepared to sign a lot of documents. Depending on what state you are in the closing will be handled by either a title agent or an attorney, because the requirements vary by state law. 7th Level Mortgage can recommend a title company and settlement agent that they work with to handle your closing. You will be in excellent hands at closing. It will be simple process. Do not forget to bring your state issued identification with you as well as another valid form of identification.