Do I qualify for a Conventional Home Loan?
Have you ever wonder if you qualify for a mortgage? What the requirements are? You may have too many questions but please read carefuly and If you have a questions you can either apply or ask for more information. We are here to help you.
A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate.
There are two primary categories of conventional mortgages:
- Conforming: A conforming mortgage follows the guidelines put in place by Freddie Mac and Fannie Mae, including loan limits.
- Non-conforming: These mortgages include both “jumbo loans” which exceed the loan limits imposed by government-backed agencies, niche products for unusual circumstances and riskier products that are much less common these days.
Why Choose a Conventional Loan?
Most homebuyers choose conventional mortgages because they offer the best interest rates and loan terms—usually resulting in a lower monthly payment. And since most people choose a fixed-rate loan over an adjustable-rate mortgage, they don’t have to worry about rising mortgage rates, which makes it easier to budget.
How Do I Qualify for a Conventional Loan?
Without the backing of the government, conventional loan borrowers pose a bigger risk to the institutions who issue the mortgage. As such, borrowers must meet three basic requirements.
1. Make a sizeable down payment
The standard down payment for a conventional loan is anywhere between 3 and 25 percent of a home’s value depending on the borrower’s credit and financial condition. For example, a $100,000 home could require a $20,000 down payment.
However, depending on a lender’s unique specifications, a borrower may be able to put down as little as 3 percent at closing. Just keep in mind, this option is typically only available to those who meet additional requirements, like being a first-time homebuyer. Remember, with a larger down payment, homeowners also enjoy immediate equity in their home.
2. Prove a stable income
To qualify for a conventional loan, your monthly mortgage payments and monthly non-mortgage debts must fall within certain ranges. For instance, a lender may require your monthly mortgage payments (which may include taxes and insurance) not exceed 28 percent of your gross monthly income. In addition, your monthly mortgage payments, when combined with your other monthly debt payments (car loans, student loans, credit card bills, etc.), may be limited to a maximum of 43 percent of your gross monthly income.
3. Have a good credit score
Your credit score also plays an integral role when qualifying for a conventional loan. In fact, most lenders require a minimum FICO credit score of around 620 to obtain approval. The better the credit score the better the interest rate you may qualify for.
Is a Conventional Home Loan Right for You?
The bottom line is that conventional loans are really only available to borrowers with good credit and some available cash for down payment. If you are fortunate to be an attractive borrower, then you might have the ability to obtain a loan at a lower cost and have it processed faster than with a government insured loan.
Remember, each lender offers different rates, terms and fees, so it’s best to receive a Loan Estimate (LE) prior to committing to one institution. This additional research will help you secure the best mortgage terms possible for your future home loan and we are here to help you.