Conventional Mortgage – Introduction Video
Let us start off with a small introduction video to Conventional loan. After the video we will look at finer details about conventional mortgage, qualification criteria, pros n cons, benefits, loan limits, fees, negotiation fronts.
On this page:
- What Is Conventional Mortgage?
- How To Qualify For Conventional Mortgage?
- Conventional is conforming and nonconforming
- When to consider conventional mortgage
- Other Options
What Is Conventional Mortgage?
When most home buyers are thinking of a mortgage, they’re thinking of a conventional loan. By now also you might have heard about “conventional loans” or “conventional mortgage” more than once. A conventional mortgage is any type of home loan that is not insured or secured by the government.
Qualification Criteria For Conventional Loan
Pretty much all lenders offer conventional home loans and you can qualify with 5% down and 620 credit score [higher your score better rates you get and lesser you pay for private mortgage insurance], if you are a first-time home buyer then you may qualify with 3% down as well.
Refinancing With Conventional Mortgage
90%+ homebuyers turn to conventional when they want to refinance their home loans, home owners build equity in their homes over a period of time and to avoid any mortgage insurance the wise option if to refinance with a conventional mortgage.
How To Qualify For A Conventional Loan
As conventional loans are not backed by the government the lenders raise the bar a little. Like better credit score, a deeper look into your credit history and employment stability to make sure you can carry the burden of the mortgage. Still, home buyers should not be scared away and assume that they cannot qualify. Conventional loan qualification is not difficult for the average home buyer.
- Credit Score : Ideally you should be in the 720+ range for better rates and easy qualification process. You can still qualify with a 620+score if you are paying your bills on time and are earning a pretty steady income. While filling up the application the lender will ask for your social to run a credit check.
- Proof of Income : These documents will include but may not be limited to
- 30 day’s pay stubs
- Two years of W-2 statements
- Offer letter if awaiting to start
- 2 year tax returns if self-employed
- Proof of education for new graduates
- Property Appraisal : The lender will require a property appraisal to make sure that the property is appraised higher than the loan amount you are seeking. If the appraisal comes to be lower than what seller is asking for you can use this as a bargaining point and ask seller to drop the price to match the appraisal.
- Debt-to-Income Ratio : For conventional loans your debt-to-income ratio (DTI) should not be more than 43%.
- Down payment : You may qualify with as little as 3% down and there are 2 programs for the same
- Conventional 97
- HomeReadyTM
Conventional, conforming and nonconforming
Conventional loans are often erroneously referred to as conforming mortgages. While there is overlap, the two are distinct categories. Conventional mortgages fall into two categories “conforming” and “nonconforming” loans.
Conforming loans follow the guidelines set by Fannie Mae and Freddie Mac, two government-controlled companies that provide money for the U.S. housing market. As of 2020 the conforming loan limit for single-family homes is $510,400. However in higher cost areas it can go to a higher limit of $765,600.
So while all conforming loans are conventional, not all conventional loans qualify as conforming. For example a jumbo loan of $900,000 is a conventional mortgage but not a conforming mortgage as it surpasses the limit set by Freddie Mac or Fannie Mae.
Summarizing it up
When you should consider conventional mortgage
To sum it up in a sentence home buyers should consider conventional mortgage when they have excellent credit score and absolutely no down payment problem. Score of 720+ and 20% down guarantees you NO PMI and lowest possible 30 year fixed rates.
What Other Options Do I Have?
However, if you’re turned down for a conventional mortgage you may still qualify for some other government funded programs. For example if you’re a first time home buyer, you may qualify for an FHA home loan or if the property is not in main stream urban area [sub urban area] you may qualify for a USDA home loan. Both these programs are insured by the government of United States and have slightly different loan requirements for credit score and down payment Fill up the application and we will guide you with the best loan option in your case.
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