PROGRAM KNOWLEDGE BASE

Conventional Knowledge Base

Conventional is not one loan. Teach agency eligibility, LTV, PMI, seller contributions, DU/LPA, occupancy, gifts, reserves and why a borrower with 3% down may or may not fit a 97% LTV product.

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Program Rules You Must Understand

Low-down-payment options

Certain eligible one-unit principal-residence conventional purchase loans can reach 97% LTV, meaning 3% down, subject to product, first-time-homebuyer and underwriting requirements.

PMI

Private mortgage insurance is commonly required when conventional first-mortgage LTV exceeds 80%, subject to product/investor rules. PMI cost depends on factors such as LTV, credit, coverage and insurer.

Seller / interested-party contributions

For Fannie Mae principal residence/second home transactions, maximum financing concessions are generally 3% when LTV/CLTV >90%, 6% at 75.01%-90%, and 9% at 75% or less. Investment property is generally 2%.

Use of seller contributions

IPCs cannot be used for the borrower's down payment, reserve requirements or minimum borrower contribution requirements.

AUS

Desktop Underwriter (DU) / Loan Product Advisor (LPA) findings can materially affect eligibility, documentation and ratios.

DTI

Do not teach one conventional universal maximum DTI. AUS, manual rules, product type, non-occupant borrowers and lender overlays matter.

Gifts

Eligible gifts can be used on qualifying principal-residence/second-home transactions subject to donor, contribution and documentation rules; gifts are not permitted on Fannie Mae investment-property transactions.

Occupancy

Principal residence, second home and investment property have different LTV, reserve, pricing and eligibility rules.

Questions to Ask — and Why

QUESTION TO ASK

WHY YOU ASK IT

WHAT THE ANSWER CHANGES

Is anyone a first-time homebuyer?

Some 97% LTV options have first-time-homebuyer requirements.

Can open or close specific low-down-payment paths.

How much down do you want to make?

Changes LTV, PMI, seller-contribution limits, pricing and reserves.

A 3%, 5%, 10% and 20% down structure can behave very differently.

Will this be primary, second home or investment?

Conventional rules vary sharply by occupancy.

Changes LTV, gift eligibility, reserve and IPC rules.

Is the seller contributing?

IPC limits vary by LTV and occupancy.

A 6% seller credit may be fine at one LTV and excessive at another.

Are any funds gifts?

Gifts are allowed only under specified conditions.

Changes minimum borrower contribution and documentation.

What is your credit profile?

Credit materially affects AUS, pricing and PMI.

Can change whether conventional is competitive versus FHA or another program.

Worked Training Example

At 95% LTV on a principal residence, a Fannie Mae IPC limit is generally 3%. On a $300,000 price, that is $9,000 maximum financing concession, limited further by actual eligible costs. At 80% LTV, the general limit is 9%.

Important: A training example is not an approval. Always verify current agency/investor/lender guidance, AUS findings and overlays before representing a rule as final.

What a New LO Should Be Able to Explain

After studying this program, the trainee should be able to explain the minimum-investment concept, seller-contribution limits, insurance/fee structure, occupancy, ratio philosophy, key eligibility questions, documentation triggers and why this program may or may not fit a borrower.