Conventional Loans: The Smart, Flexible Path to Homeownership

A conventional loan is the most common form of mortgage financing. It is not backed by the government (unlike FHA, VA, or USDA loans) but instead adheres to the specific lending standards, or "conforming limits," set by the Federal Housing Finance Agency (FHFA). These limits are enforced through the two primary Government-Sponsored Enterprises (GSEs): Fannie Mae (FNMA) and Freddie Mac (FHLMC).

AAA Capital Funding: Going Beyond the Typical Underwriting Box

While most lenders adhere rigidly to the GSE's standard Automated Underwriting System (AUS) findings, AAA Capital Funding, Inc. is a mortgage broker and lender established since 1997 that leverages its broad network to offer more flexible solutions. If you have been told 'No' elsewhere, we encourage you to not give up just yet and allow us to see what we can do for you.

• Debt-to-Income (DTI) Flexibility: The standard industry maximum DTI ratio is often capped lower, but our access to expanded guidelines allows us to approve strong borrowers with DTIs up to the high 40s and even into the 50s. This flexibility is crucial for buyers with high student loan debts or significant projected income increases.
• Simplified Self-Employed Documentation: For many self-employed borrowers, we require only your most recent one year of personal and business tax returns, significantly reducing the paperwork and approval timeline compared to the typical two-year requirement.

The Strategic Benefit of Cancellable Private Mortgage Insurance (PMI)

When your down payment is less than 20% (Loan-to-Value or LTV is above 80%), Conventional loans require Private Mortgage Insurance (PMI). However, the ability to remove this monthly cost is the single greatest long-term financial benefit of this loan type. Unlike FHA's Mortgage Insurance Premium (MIP), which often lasts for the life of the loan, PMI on a Conventional loan is governed by the Homeowners Protection Act (HPA):

• Automatic Removal: Your loan servicer must automatically terminate PMI when your loan balance is scheduled to reach 78% LTV of the original home value.
• Requested Removal: You have the right to request cancellation when your loan balance reaches 80% LTV of the original value.
• Early Removal via Appreciation: If your home value has rapidly increased, you can often apply for early removal based on a new appraisal, potentially eliminating PMI years ahead of schedule.

Loan-Level Pricing Adjustments (LLPAs) and Rate Strategy

Conventional loans use a risk-based pricing structure known as Loan-Level Pricing Adjustments (LLPAs). These fees are directly tied to your FICO credit score and your Loan-to-Value (LTV) ratio. LLPAs are critical because they determine your final interest rate and closing costs.

Our HUD Approved Loan Officers help you analyze the LLPA matrix before locking your rate, advising whether increasing your down payment by even a small amount can jump you into a lower-risk tier and save you thousands over the loan's life.