This section will discuss Conventional loans.
What is a Conventional Loan?
A conventional loan is a mortgage that meets the lending requirements of Fannie Mae and Freddie Mac. Most conventional mortgages are issued by private lenders who then sell the loan to one of these Government Sponsored Entities (GSE’s).
Conventional Loan Requirements
Credit- The minimum credit score requirement is 620 and above
Occupancy- Conventional loans can be used to finance a primary residence, a second home, vacation property or an investment property. This is different from government-backed loan programs (FHA, VA, and USDA) which can only be used to finance your primary residence.
Property Type- Single-family homes, duplexes, 2-4 unit properties, condominiums and townhouses are eligible.
Income- Income will be calculated by reviewing recent pay check stubs,W2’s, and tax returns. The max acceptable back end debt-to-income ratio cannot exceed 50% on conventional loans.
Government-backed loans are issued by private lenders and guaranteed by the Federal Government with loan programs such as FHA, VA, and USDA.
Conventional loans are not insured by the government, so they require private mortgage insurance (PMI) if the loan to value (LTV) is 80% or greater.
FHA Loans – An FHA mortgage are the most popular loan choices due to its low down payment options (3.5% down), its extremely flexible debt to income ratios, and credit scores.
VA Loans – VA loans are for Veterans, they come with zero down payment or mortgage insurance.
USDA Loans – The Department of US Agriculture created the USDA loan program. for low-to-median income homebuyers in the United States
Conventional Loan Advantages
- Higher loan limits than FHA
- No PMI If you make a down payment of 20% or greater
- More property flexibility the Go
- PMI cancels when the Loan to Value (LTV) reaches 80%
- Conventional offers a 97% loan with only 3% down
Conventional Loan Disadvantages
- Credit score requirement is higher than FHA 620+
- Potential higher down payment requirement
- Qualifying guidelines are not as flexible as Govt. loan programs
- Lower debt to income ratio than FHA, so lower income borrowers might not qualify for as much home as on Govt. backed program
- Much higher PMI rates than FHA
A conventional loan is the loan for you if:
- Minimum Fico credit score of 620
- Have a 20% down payment available
- Have a low debt-to-income ratio
- Need a loan amount that is above the FHA loan limits in your area
Down Payment Guidelines
The minimum down payment is usually between 3% – 20%+ of the sales price.
The conventional 97 is the GSE’s response to FHA low down payment loans. The 97 loan offers a 3% down payment.
Conventional mortgage loans that the mortgage is greater than 80% loan to value (LTV) will require private mortgage insurance (PMI). Private mortgage insurance is an insurance policy that compensates the lenders for any loss above 80% LTV
2020 Conventional Loan Limits
|Conforming Loan Limits 2019 1 – 4 Unit Housing in Contiguous U.S.|
|Units||Conforming Loan Limits 2020||High Balance Conforming Loan Limits 2020|
For a list of the loan limits in your area click here:
Conventional & FHA Comparison Graph
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