Mortgage Lending Guidelines & Definitions

*Please note: the following information is to serve as a guideline. Mortgage rates and regulations do change so please verify with your lender which loan program is best for you. 

Quick Definitions:
A conventional loan is any mortgage that doesn’t provide a government guarantee to compensate the lender if the borrower defaults.

A conforming loan is a type of conventional loan.
A Summary of Conforming Mortgage Down- Payment Requirements:
Conforming loans are mortgages that meet the guidelines set by Fannie Mae and Freddie Mac so banks' loan portfolios qualify for sale to those agencies later.  The Federal Housing Administration (FHA) is part of the US Dept of Housing & Urban Development and provides mortgage insurance on loans made by FHA-approved lenders.

The current FHA loan limit for a single-family  conforming loan is $1,089,300 in some geographic areas at "ceiling" (The limit varies depending on the median baseline values of a geographic region, so you should confirm current the limit for the region you're contemplating with your banker).  You can also check the US Department of Housing and Urban Development site here.

To qualify for a conforming loan, you will need to have:
i - A Credit score of at least 620
ii - A Debt-to-income ratio no higher than 45%
iii - A Maximum loan-to-value ratio of 97%, which means you’ll need to put at least 3% down (and the house would have to appraise for that loan amount).

Lenders' underwriting teams can interpret the guidelines for FHA adherence for documentation requirements differently - full bank statement format requirements and format/content prerequisites of employment letters are just a couple of examples where the lender may choose to mitigate risk with stricter interpretation than the agencies may actually demand.

Other variables affecting down-payment and loan type:
- If you’re not a first-time home buyer or making no more than 80% of the median income in your area, the down payment requirement is 5%.
- If you’re buying a second home, you’ll need to put at least 10% down.
- If the house you’re buying is not a single-family home (it has more than one legal dwelling unit), you may need to put down 15%.
- If you’re getting an adjustable-rate mortgage, the minimum down payment requirement is 5%, but your financial circumstances or the type of property will determine the variables to that minimum.   

Conventional loans that don’t fall within the loan limits set by the FHFA are referred to as “non-conforming.” These high-value conventional loans are commonly called Jumbo loans.  The credit requirements for jumbo loans vary depending on the lenders' own guidelines.  Some provide more flexible allowances for self-employed, retired and other individuals whose income comes primarily from investments. The rates will also vary depending on the lenders' discretion.

Additional: Government-backed loans, such as FHA and VA loans, are also non-conforming. FHA loans allow borrowers to have credit scores as low as 500 when they put down 10%, for example.  These loans may also allow 0% down but the FHA guidelines for such loans require a very particular adherence to higher requirements for home condition.
So basically, most fixer-uppers will not qualify for an FHA loan.  If a home is being sold "as-is", that means the seller is not willing to make any corrections of home inspection findings, therefore an FHA-backed loan would not be approved.