Conventional Services
Conventional services typically refer to financial products and services offered by private lenders and investors, including conventional mortgages and other types of loans. These services are not backed by the government and typically require good credit and financial stability to qualify.
Conventional Loan Requirements
Conventional loans are mortgage loans that are not backed by the government. As a result, lenders usually have stricter requirements for borrowers in order to manage their risk.
Overall, the higher credit and income requirements for conventional loans can make them more challenging to qualify for, but they can also offer more favorable terms and interest rates for borrowers who meet the criteria.
Down Payment
The down payment required for a conventional loan typically ranges from 3% to 20% of the home’s purchase price. A larger down payment can help avoid private mortgage insurance and potentially reduce monthly payments.
Private Mortgage Insurance
Private Mortgage Insurance (PMI) is typically required for conventional loans with a down payment of less than 20% of the home’s purchase price. The cost of PMI can vary based on loan amount, down payment, and credit score, and can be paid upfront or in monthly installments.
Other Requirements
In addition to a minimum down payment of 3%, borrowers seeking a conventional loan typically need a credit score of at least 620, a debt-to-income ratio of 43% or less, and a stable employment history. Some lenders may have additional requirements such as a certain amount of cash reserves.
How Is A Conventional Mortgage Different Than Other Loan Types?
A conventional mortgage is different from other loan types, such as FHA or VA loans, in several ways:
* Government backing: Unlike FHA and VA loans, conventional mortgages are not insured or guaranteed by the government. Instead, they are backed by private lenders and investors.
* Mortgage insurance: Conventional loans may require private mortgage insurance (PMI) if the borrower puts down less than 20%, while FHA loans require upfront and annual mortgage insurance premiums, and VA loans may require a funding fee.
Other Requirements
- Credit score: In most cases, you’ll need a credit score of at least 620 to qualify for a conventional loan. When you apply, your lender will check your credit history to determine if you have good credit. If you don’t, you might not get approved for the loan.
- Debt-to-income ratio: Your debt-to-income ratio (DTI) is a percentage that represents how much of your monthly income goes to pay off debts. You can calculate your DTI by adding up the minimum monthly payments on all your debts (like student loans, auto loans and credit cards) and dividing it by your gross monthly income. For most conventional loans, your DTI must be 50% or lower.
- Loan size: The loan size requirement for conventional loans can vary depending on factors such as the borrower’s credit score, income, and debt-to-income ratio. However, most conventional loans have a maximum loan amount of $548,250 in 2021 for a single-family home. This limit may be higher in areas with high housing costs, known as high-cost areas. It’s important to note that loan size requirements for conventional loans can change over time based on market conditions and other factors. To see loan limits for your area, visit the Federal Housing Finance Agency website.
There are several types of conventional loans available, including:
1. Fixed-rate mortgages
2. Adjustable-rate mortgages (ARMs)
3. Jumbo loans
4. Home renovation loans
5. Energy-efficient mortgages
6. Interest-only loans
7. Balloon mortgages
Fixed-rate loans
The interest rate on these loans remains the same throughout the life of the loan, typically 15 or 30 years.
Adjustable-rate mortgages (ARMs):
These loans offer a lower initial interest rate that adjusts over time based on market conditions.
Jumbo loans
These are conventional loans that exceed the conforming loan limits set by Fannie Mae and Freddie Mac, typically for higher-priced homes.
Home renovation loans
These loans allow borrowers to finance the cost of home improvements into their mortgage.
Energy-efficient mortgages
These loans provide financing for energy-efficient home improvements and upgrades.
Interest-only loans
These loans allow borrowers to pay only the interest on the loan for a set period, typically 5-10 years, before beginning to pay off the principal.
Balloon mortgages:
These loans offer lower monthly payments for a set period, typically 5-7 years, before requiring a large final payment (balloon payment) at the end of the loan term.
832-243-1548
Book a Mortgage or Customize a Mortgage Today