What is a Conventional Loan?
By definition, a conventional loan is any mortgage that is not guaranteed or insured by the federal government. A conventional loan is generally referring to a mortgage loan that follows the guidelines of government sponsored enterprises like Fannie Mae or Freddie Mac. Conventional loans may be either “conforming” or “non-conforming”. Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Nonconforming loans don’t meet Fannie Mae or Freddie Mac guidelines, but they are also considered conventional. Whether you’re buying a home or want or refinance your mortgage, a Conventional Loan might be right for you. If you’re unsure about your credit rating, or have concerns about a down payment, Conventional Mortgages can give you piece of mind with super low closing costs and flexible payment options.
To decide if you qualify for a Conventional Mortgage Loan, we will look at:
- Your income and your monthly expenses. Standard debt-to-income ratios are 28/36 for Conventional Loans. These ratios may be exceeded with compensation factors.
- Your credit history (this is important, but Conventional credit standards are flexible). A FICO score of 620 or above is very helpful in obtaining an approval.
- Your overall pattern rather than to individual problems you may have had.
To be eligible for an Conventional mortgage, your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income (28% ratio). Your credit background will be fairly considered. At least a 620 FICO credit score is generally required to obtain an Conventional approval. You must also have enough income to pay your housing costs plus all additional monthly debt (36% ratio). These percentages may be exceeded with compensating factors.
Conventional Loans require the home buyer to invest at least 5% – 20% of the sales price in cash for the down payment and closing costs. If the sales price is $100,000 for example, the home buyer must invest at least $5,000 – $20,000.
The interest rate for your home loan will be determined by the type of loan program that you qualify for and your credit score. You might be asking yourself what the formula to calculate interest rates is. Interest rates are driven off of Mortgage Backed Securities (MBS) which are commonly referred to “mortgage bonds”. These values of these bonds determine whether the interest rates rise or fall. Your final rate will determine your payment using the standard calculate mortgage payment formula. Please contact one of our loan officers to see what is today’s lending mortgage rate.
While Conventional Mortgage Guidelines allow you to purchase warrantable condos, planned unit developments, modular homes, manufactured homes, and 1-4 family residences. Conventional Loans can be used to finance primary residences, second homes and investment property.
Criteria for Conventional loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for four years or more, you are eligible to apply for an Conventional mortgage. If you have had a Chapter 13 bankruptcy, it must be documented that the credit reputation has been re-established for at least two years to be eligible for a Conventional Loan Application.
The maximum amount for an Conventional Mortgage Loans are determined by the Maximum loan amount: The maximum loan amount allowed for an Conventional Conforming Loan varies from county to county. The highest maximum Conventional Conforming right now is $729,750. The lowest maximum Conventional Mortgage amount available in any county is $417,000. To see what the limit is in the county in which you’re interested, visit the following site https://www.efanniemae.com/sf/refmaterials/loanlimits/. This site lists U.S. territories as well as states.
Depending on the state where the property is located, the maximum Conventional Mortgage amount will be 80% – 95% of the appraised value of the home or its selling price, whichever is lower.
If you are in need of a large loan amount you may need a jumbo loan. A jumbo loan is a non-conventional loan because it exceeds the county’s general or high-loan limit. In most areas of the country that would mean a loan amount of more than $417,000 but in high cost areas, it could be for a loan that is more than $721,050.
If you don’t qualify for a conventional loan, getting an FHA loan might also be a good alternative because their loan limits vary by county. You can contact me for live, customized conventional loan quote by completing the online application or by calling me at 843-375-6611