Conventional loans

Conventional Loans are the most popular type of mortgage loans.  They have stricter guidelines and credit standards than some of the mortgage products insured by the government (i.e., FHA or VA loans). They range in terms from 15 to 30 years. If you plan to put down any amount less than 20%, you can expect Private Mortgage Insurance (PMI) to be added to your payment until you have achieved 20% equity in your property. It is also important to note that the option of down payments as low as 3% of the purchase price are also available with conventional financing.

Conventional Loan Eligibility. 

 Anyone can apply for a Conventional mortgage — whether you’re moving up to a larger home, downsizing to a smaller one, buying a vacation home, or buying for the first time; applicants must meet the following loan requirements: 

• Proof of Verifiable Income and Employment History.  Applicants must be able to prove sufficient income to support the proposed house payment and other qualifying debt (see DTI requirements below).  In most cases, a two-year history of employment is also required.  There are a few instances where the two-year employment requirement is not needed (such as an individual who just graduated from school, a retiree or someone whose income is derived from disability).
• A Minimum Credit Score of 640.  Conventional mortgages are backed by private investors and generally require higher credit scores and a lower DTI (debt-to-income ratio) than government-backed mortgages.  The average minimum credit score requirement is 640, but there are loan products that will accept a minimum score of 620.
• Down Payment Requirement.  Many people believe that you need a 20% down payment for a Conventional Loan; however, qualified buyers can put as little as 5% down and, in some cases, even 3%. One of the benefits of putting 20% down is that there is no Mortgage Insurance required.    
• Debt-to-Income Ratio (DTI) Requirement. The highest allowable DTI ratio (back-end) for a conventional mortgage is 43%. Your DTI is calculated by totaling the minimum payments on all your recurring monthly debts (student loans, credit card and installment payments, as well as your new proposed house payment), divided by your monthly gross income – expressed as a percentage. For example, if your new house payment is $1,800 per month, your car payment is $529 per month, and your minimum monthly credit card payment is $315, your total monthly debt is $2,644. If your gross income is $6,000 per month, then your DTI is roughly 44% (2,644 ÷ 6,000 = 44.06).
• Mortgage Insurance (PMI) Requirement.  When you finance your home with a conventional mortgage and pay less than 20% toward the down payment, you will be required to pay PMI which can be canceled once you reach 20% equity.
• Eligible Properties.  Conventional Loans can be used to finance any type of property – primary residences, second-homes, rental properties, or even investment properties. Unlike other loan products, a property using Conventional financing does not need to be a primary residence.

Applying for a Conventional Loan 

It’s easy. To get started, you will want to gather the following (that applies to you):

1. Proof of income and employment (pay stubs, tax returns, W-2 statements, retirement statements Social Security statements, child support and alimony documentation etc.)
2. Documentation of financial assets (bank statements, 401k statement, documentation of income from investments, etc.)
3. Most recent two Residential history (Name and Contact information for current landlord, etc.)
4. Identity information such as your unexpired Driver’s License and Social Security card.

If you have questions and would like to speak to someone, give us a call at 832.946.8400