What is a Conventional Loan?
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 (GSE’s) like Fannie Mae or Freddie Mac. Conventional loans may be either “conforming” and “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.. 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.
What are the Conventional Loan Requirements?
To decide if you qualify for an 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’s 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 a 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.
What are the Conventional Down Payment Requirements?
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.
What will be my Interest Rate?
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 is the formula to calculate interest rates? Interest rates are driven off of Mortgage Backed Securities (MBS) which are commonly referred to “mortgage bonds”. These value 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.
What types of property are eligible?
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.
Can I get a Conventional Mortgage Loan after bankruptcy?
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 your credit reputation has been re-established for at least two years to be eligible for a Conventional Loan Application.
What is the maximum amount that I can borrow?
The maximum amount for an Conventional Mortgage Loans are determined by:
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 sit 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.
What Kinds of Loans do Conventional Programs Offer?
Fixed rate loans – Most Conventional Mortgages are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same for the entire loan period. With a fixed rate Conventional Mortgage, you always know exactly how much your monthly payment will be. Contact us for today’s free Conventional mortgage rates.
Adjustable rate loans – With a conventional adjustable rate mortgage (ARM), the initial interest rate and monthly payments are low, but these may change during the life of the loan. Conventional Loans mainly use the Constant Maturity Treasury Index (CMT) or the London Interbank Offered Rate Index (LIBOR) to calculate the changes in interest rates. Conventional ARMS are offered with initial fixed rate periods of 3 years, 5 years, 7 years and 10 years.