What Are Conventional Mortgage Loans?
Conventional Mortgage loans are loans that are not insured by the Federal Government. These loans are available through various lenders. Lenders for conventional loans vary from credit unions, banks, private lenders, and mortgage companies. Conventional Loans are sometimes referred to as “conforming” loans. They call them conforming loans because these loans conform to the requirements for Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac buy mortgages from lenders and either hold or sell the loans to investors. This helps provide liquidity, affordability, and stability for the housing and mortgage markets. Conventional loans have a limit of $647,200. If someone is purchasing a home for over $647,200, they will need a Jumbo Loan.
What are the benefits of Conventional Mortgage Loans?
Since conventional loans are not backed by a government program or agency, there are less restrictions for the loans. The guidelines for conventional loans allow a lot more flexibility for buyers, which is why conventional loans are one of the most common loans people receive for their home.
Multiple Uses for Conventional Loans
You can apply and receive a conventional loan even if you already have a primary residence. Conventional loans can be used for any of the following:
– Primary Homes
– Secondary Homes
– Vacation Homes
– Rental Properties
Various Down Payment Options
Sometimes loans will require borrower’s to have a certain percentage of the loan available for a down payment. Down payments for conventional loans can start as low as 3% for first-time buyers! The common minimum down payment requirement is 5%. The down payment percentage varies based on what the property is going to be used for. Conventional loans also have an option to avoid the necessity for Private Mortgage Insurance.
Avoiding Private Mortgage Insurance
Conventional loans have the option for the borrower to not need Private Mortgage Insurance. If the buyer is willing to pay 20% of the total amount of the loan for their down payment, Private Mortgage Insurance will not be required! This is a great way for home buyers to save money and have lower monthly costs.
Lower Interest Rates
These loans tend to have lower interest rates than FHA loans and various other kinds of loans. Since there are less restrictions on these loans and more flexibility for lenders and borrowers, the interest rates are more flexible and tend to be lower.
Conventional Loans also have the options to be either at a fixed mortgage rate or an adjustable mortgage rate. Although most people tend to go with the fixed mortgage rate, an adjustable mortgage rate is always an option and could provide more benefits to certain home buyers.
How do you qualify for Conventional Mortgage Loans?
Conventional Loans only have a couple of requirements that home buyers must meet. Although there are requirements, they are not very strict and allow flexibility for buyers.
Down Payment
Home buyers must have at least 3% of the total loan amount available for a down payment. If borrowers are able to provide more than 3% for their down payment, there are benefits such as not needing Private Mortgage Insurance (PMI).
Private Mortgage Insurance
If borrowers are not able to pay a down payment that is 20% of the total loan amount, they are required to have Private Mortgage Insurance. Since conventional loans are not backed by the federal government or any federal agency, PMI is required for borrowers who pay a down payment less that 20%.
Debt-to-Income Ratio
Home buyers must have a debt-to-income ratio below 50% to qualify for a conventional loan. This means that no more than half of of the borrowers monthly income can go to paying off debts. Read more about debt-to-income ratios here.
Credit Score
In order to be approved for a conventional loan, borrowers must have a credit score of at least 620.
Loan Amount
The amount requested for the loan must be less than $647,200. Loans over $647,000 are considered to be jumbo loans. For example, if someone needed a loan for $700,000 they would need to apply for a jumbo loan.
How do you apply for a Conventional Mortgage Loan?
There are two steps to applying for a conventional loan. The first thing you need to do is gather the necessary documentation that your lender is need. You will need to gather the following information:
– A valid state identification
– A valid social security number
– Employment verification
– Proof of income and assets
After you have the necessary paperwork, you can contact us at 602-753-9600 to start the application process today!
Still have more questions about Conventional Mortgage Loans?
All of the information about loans can be overwhelming and confusing for home buyers. More information provided from the Consumer Financial Protection Bureau about conventional loans can be found here. The Mortgage Genius has help thousands of clients apply and get approved for conventional loans. Contact him today to get approved for the loan for your dream home!