The Conventional Mortgage Loan
Those who have just entered the housing market and found the home of their dreams may be intimidated by the countless loan options available. Conventional mortgage loans are one of many home loans you can take to help finance your home purchase. Although it requires a sizable down payment and a high credit score, conventional mortgage loans may be the perfect solution for you.
At Goldwater Bank, we are committed to serving you by walking alongside you toward homeownership. Depending upon your home buying circumstances, we believe conventional mortgages can be an excellent choice to fund your dream home. We want to break down more about conventional loans so you can make the best-informed home loan decision.
What are conventional mortgage loans?
Conventional mortgage loans are part of a loan program unique to private lenders. Some examples of private lenders you could approach for this type of loan are banks, credit unions, and mortgage companies. This means a government agency does not control conventional mortgage loans and cannot charge fees because of it.
Most conventional mortgage loans have fixed rates that do not change during the life of the loan, although some are adjustable rate mortgages. Many are drawn to these loans because interest rates are stable in the midst of unpredictable times.
Closing costs on conventional mortgage loans can be covered by the seller up to 3% of the house’s value. This means that if you purchase a $200,000 dream home, the seller is able to pay $6000 in closing costs. Although there are higher qualifications in terms of credit score and down payment, the loan benefits far outweigh them.
What kinds of conventional mortgage loans are there?
While conventional mortgage loans are the same by nature, there are a few key differences that distinguish them apart. Among these kinds of home loans are conforming and non-conforming that are both excellent options depending upon your home buying situation.
The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have set dollar limits on conventional mortgage loans. Conforming loans fall within their terms and conditions while non-conforming loans exceed these boundaries. In 2021, that maximum loan amount is $548,250 for most of the continental United States.
For example, Jumbo Loans are conventional mortgage loans that are also non-conforming. This is because they are generally used to purchase luxurious homes with a greater loan capacity. An $800,000 jumbo loan would then surpass the Fannie Mae and Freddie Mac dollar limits.
What are the advantages of conventional mortgage loans?
Among the countless financing options available, conventional mortgage loans offer key advantages that make it a wise home loan decision. Goldwater Bank believes conventional mortgage loans can help you get the home of your dreams because:
They allow for a second home purchase
Other home loan programs such as VA Home Loans only allow for the purchase of primary residence homes. However, conventional mortgage loans provide greater versatility to home buyers. They are able to invest in a home to sell in the future or buy a vacation home for their families.
They give the choice of mortgage insurance
Mortgage insurance premiums can make or break someone’s financial future if they are too high. While FHA loans require lifetime mortgage insurance, conventional home loan participants only need it temporarily. They can decide to bypass monthly payments after the home’s principal has been paid below 78%.
They stop additional program fees
Because private lenders lead conventional mortgage loans, home buyers are protected from hidden government fees. Additional program payments would normally be applied in government-sponsored loan programs through funding fees. For example, VA Home Loans demand a 1.4 to 2.3% funding fee.
What are conventional mortgage loan requirements?
Conventional mortgage loans carry incredible benefits for homebuyers but come with stricter requirements. To be eligible for this type of loan, you have to pay a certain down payment, keep a high enough credit score and have a promising DTI
First-time buyers may be able to qualify for a conventional mortgage loan with only a 3% downpayment. In all other situations, this figure is determined by your home buying status and kind of conventional loan.
- If you are an experienced home buyer or earn less than 80% of your area’s median income, you are required to put down 5%.
- If the home you’re purchasing a single-family home, you will likely need a down payment of 15%.
- If you are buying your second home, 10% is required by private lenders.
- If you choose to go with an adjustable-rate mortgage, you will have to put down 5%.
- If you can obtain a jumbo loan, 20% to 40% is the range for your down payment.
Credit Score & DTI
Since interest rates run lower for conventional mortgage loans than VA loans, a home buyer’s credit score has to be higher to compensate. A score of 620 is the average in the home loan market to aim for. Your Debt to Income Ratio (DTI) must be below 50% to be accepted by most lenders. Unlike most misconceptions, you can still have debt and qualify for a conventional loan.
Why conventional mortgage loans?
For those who can fund a sizable down payment and have a good credit score, conventional mortgage loans can be an excellent financing solution. While there are tons of home loans offered on the market, this type is suited for families who are ready to purchase their dream home. When simplified, conventional home loans and home financing are not as intimidating as they seem.
Goldwater Bank works to simplify the home loan process so you can get homeownership. We serve our clients and partner with them every step of the way. We pride ourselves in being your conventional mortgage Phoenix lender.
To contact Jimmy Vercellino and the team, give us a call at 480.800.8387. You can also visit our Phoenix office in person and we would be honored to assist you.