CONVENTIONAL LOANS
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What is a Conventional Loan
Conventional home loans are the most common type of mortgage in the country. These loans are not insured or guaranteed by the government, unlike FHA and VA loans. Lenders offer conventional loans with varying terms and interest rates, and borrowers typically need to have good credit and a stable income to qualify. Conventional loans can be used to purchase primary residences, second homes, or investment properties. They also offer the flexibility of choosing between fixed or adjustable interest rates. While conventional loans may require a higher down payment than government-backed loans, they often have lower interest rates and fewer fees. Additionally, borrowers can avoid mortgage insurance if they put down at least 20% of the home’s purchase price. Overall, conventional home loans are a popular choice for those who meet the qualifications and want to own a home without government involvement.
Conventional Loan Overview
Although conventional loans may require a higher down payment than government-backed loans, they often have lower interest rates and fewer fees. Moreover, borrowers can avoid mortgage insurance if they put down at least 20% of the home’s purchase price. With a conventional loan, borrowers can purchase the home of their dreams and build equity over time, knowing that they are in full control of their mortgage payments.
Overall, conventional loans are a popular choice for people who want to own a home without government involvement and have the qualifications required. With so many conventional loan options available, borrowers can find the loan that suits their needs by comparing different lenders. These loans have certain advantages that make them appealing to many borrowers, including lower interest rates, greater flexibility, and no mortgage insurance requirements.
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How to Qualify for a Conventional Loan
Preapproval is the first and most important step towards acquiring your Conventional Loan. Whether you’re a first-time home buyer or seeking to refinance your current home, getting preapproved helps narrow your focus to properties that fit your budget, establish credibility with sellers, and expedites both the loan funding and closing process.
Requirements for First-Time Home Buyers:
First-time homebuyers can benefit from a conventional loan because it offers greater flexibility in terms of interest rates and repayment options. Additionally, borrowers can avoid paying mortgage insurance if they put down at least 20% of the home’s purchase price, which can help reduce their monthly mortgage payments. With a conventional loan, first-time homebuyers can build equity over time and have more control over their mortgage payments, making it a popular choice for those looking for greater flexibility and options in their home financing.
Good Credit Score:
First-time homebuyers need a “good” level credit score to be approved for a conventional home loan. Lenders look at credit scores as an indication of how responsible borrowers are with credit.
Low D.T.I. Ratio:
Lenders also consider a borrower’s debt-to-income ratio. This means that the borrower’s total monthly debt payments, including the mortgage payment, should not exceed a certain percentage of their gross monthly income.
Stable Income:
First-time homebuyers need to provide proof of income and employment to show lenders that they have a steady source of income to repay the loan.
Down Payment:
A down payment of a percentage of the home’s purchase price is typically required for a conventional home loan. However, borrowers can avoid paying mortgage insurance if they put down at least 20% of the home’s purchase price.
Property Appraisal:
Lenders require a property appraisal to ensure that the home is worth the amount being financed. The appraisal also determines the maximum amount the lender is willing to finance.
Closing Costs:
First-time homebuyers need to have funds available for closing costs, which is determined as a percentage of the home’s purchase price. These costs include appraisal fees, title insurance, attorney fees, and other fees associated with the home purchase.
Requirements for Refinancing into a Conventional Loan:
Refinancing into a conventional home loan can offer several benefits for homeowners. Firstly, it can help reduce monthly mortgage payments, which can free up more money for other expenses. Secondly, homeowners can take advantage of lower interest rates and switch from an adjustable-rate to a fixed-rate mortgage, providing more financial stability. Thirdly, refinancing can allow homeowners to shorten the term of their mortgage and pay it off faster. Finally, by refinancing, homeowners may be able to access the equity in their home, which can be used for home improvements or other important expenses.
Sufficient Equity:
Homeowners looking to refinance into a conventional home loan need to have sufficient equity in their home. Some lenders may allow refinancing with little equity.
Good Credit Score:
Just like with first-time homebuyers, homeowners looking to refinance into a conventional home loan need to have a “good” level credit score. This demonstrates to lenders that they have a history of responsible credit use.
Low D.T.I. Ratio:
Lenders also consider a borrower’s debt-to-income ratio. This means that the borrower’s total monthly debt payments, including the mortgage payment, should not exceed a certain percentage of their gross monthly income.
Stable Income:
Homeowners need to provide proof of income and employment to show lenders that they have a steady source of income to repay the loan.
Down Payment:
A down payment of a percentage of the home’s purchase price is typically required for a conventional home loan. However, borrowers can avoid paying mortgage insurance if they put down at least 20% of the home’s purchase price.
Property Appraisal:
Lenders require a property appraisal to ensure that the home is worth the amount being financed. The appraisal also determines the maximum amount the lender is willing to finance.
Closing Costs:
Homeowners need to have funds available for closing costs, which can range based on the home’s appraised value. These costs include appraisal fees, title insurance, attorney fees, and other fees associated with the refinancing.
TYPES OF Conventional Loans
FIXED RATE LOANS
Offer borrowers a steady and predictable interest rate throughout the loan's duration. With a consistent interest rate, borrowers can confidently budget for their monthly payments. This mortgage option is ideal for individuals seeking stability and peace of mind. Learn more about Fixed Rate Mortgages here.
Hybrid Adjustable-Rate Mortgage (hybrid ARM)
Combines the benefits of both fixed and adjustable-rate loans. Initially, it offers a lower fixed interest rate for a set period, usually a few years, providing borrowers with predictable payments. After this initial phase, the interest rate can adjust annually, potentially affecting the monthly payment amount. Learn more about Adjustable Rate Mortgages.
Home Possible Loan
A mortgage program offered by Freddie Mac, which provides low down payment options and flexible sources of funds for low to moderate-income borrowers.
HomeReady Loan
A mortgage program offered by Fannie Mae, which provides flexible underwriting requirements and low down payment options for low to moderate-income borrowers.
Manufactured Home Loans
A manufactured home loan is a type of mortgage designed for homes constructed in a factory and then transported to their final location, offering financing options specifically tailored to these homes, including both purchase and refinance loans. Learn more about Manufactured Home Loans.
Renovation Loans
A renovation loan is a specialized type of mortgage that includes funds for home improvements and repairs, allowing borrowers to finance both the purchase or refinance of a property and the cost of renovating it within a single loan. Learn more about Renovation Loans.
It’s important to find the right type of loan that fits your unique financial situation. Contact one of PRMG’s home mortgage professionals today! We’ve been serving customers just like you for over 22 years. Your mortgage professional’s guidance can help you make an informed decision and secure your Conventional Loan.
Pros of securing a CONVENTIONAL Loan
Lower Interest Rates:
One of the main advantages of securing a conventional home loan is that it typically comes with a lower interest rate compared to other types of loans. This means that you will pay less in interest over the life of the loan, saving you money in the long run.
Higher Loan Limits:
Conventional home loans also generally have higher loan limits than other types of loans. This means that you can borrow more money if you need it to purchase a more expensive home or to complete home renovations.
Flexibility:
Conventional home loans offer a lot of flexibility in terms of loan terms and repayment schedules. You can choose from a variety of loan terms ranging from 10 to 30 years, and you can also choose from different repayment schedules, including fixed-rate and adjustable-rate options.
No Mortgage Insurance:
Another advantage of securing a conventional home loan is that you may not be required to pay mortgage insurance. If you are able to make a down payment of at least 20% of the home’s purchase price, you can avoid having to pay this additional cost.
Easier to Refinance:
Conventional home loans are generally easier to refinance than other types of loans, especially if you have built up equity in your home. Refinancing can help you save money by lowering your monthly payments or reducing the interest rate on your loan.
Resale Value:
Because conventional home loans are so popular, homes that are financed with this type of loan may have a higher resale value than homes financed with other types of loans. This can be beneficial if you plan to sell your home in the future.
Cons of securing a CONVENTIONAL Home Loan
Higher Credit Score:
Securing a conventional home loan typically requires a higher credit score than other types of loans, which may be a challenge for some borrowers.
Larger Down Payment:
Conventional home loans usually require a larger down payment, which can be difficult for some borrowers who may not have enough savings.
Stricter D.T.I. Limits:
Lenders usually require a lower debt-to-income ratio for conventional loans, which means that borrowers with high levels of debt may have trouble qualifying.
Longer Processing Time:
Conventional home loans can take longer to process than other types of loans, which can be frustrating for borrowers who are in a hurry to close.
P.M.I :
Borrowers who cannot afford a 20% down payment may be required to pay for private mortgage insurance (PMI), which can add significant cost to their monthly payments.
No Government Safety:
Unlike some other types of loans, conventional home loans do not have the backing of a government agency, which means that lenders may be less willing to take on riskier borrowers.
FAQ’s About Conventional Loans
What is a Conventional Home Loan?
A conventional home loan is a type of mortgage that is not backed by the government, unlike FHA and VA loans. It typically requires a higher credit score and a larger down payment than government-backed loans. The main advantage of a conventional loan is that it often comes with lower interest rates and fees. However, it can be harder to qualify for and requires more stringent credit and financial requirements.
How is a Conventional Home Loan different from other types of mortgages?
Conventional Home Loans are different from other types of mortgages, such as FHA or VA loans, in that they are not backed by the government. This means that the borrower typically needs a higher credit score and a larger down payment to qualify for a Conventional Home Loan.
What are the benefits of SECURING a Conventional Home Loan?
Some benefits of a Conventional Home Loan may include lower interest rates, no mortgage insurance requirement with a 20% or higher down payment, and more flexibility in terms of loan amount and property type.
How do I qualify for a Conventional Home Loan?
To qualify for a Conventional Home Loan, you typically need a credit score of at least 620, a debt-to-income ratio of no more than 45%, and a down payment of at least 3%.
How much can I borrow with a Conventional Home Loan?
The amount you can borrow with a Conventional Home Loan depends on several factors, including your credit score, income, and the value of the property you want to purchase.
Can I use a Conventional Home Loan to buy a second home or investment property?
Yes, you can use a Conventional Home Loan to buy a second home or investment property, but the down payment and credit score requirements may be higher.
Can I refinance my current mortgage with a Conventional Home Loan?
Yes, you can refinance your current mortgage with a Conventional Home Loan, but you will need to meet the lender’s eligibility requirements and may need to pay closing costs.
How long does it take to get approved for a Conventional Home Loan?
The time it takes to get approved for a Conventional Home Loan varies depending on several factors, such as the lender’s processing time, the complexity of the application, and the borrower’s financial situation. In general, the process can take several weeks.
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Whether you are a first-time homebuyer or are looking to refinance your existing mortgage, PRMG's home mortgage professionals can provide you with the information and resources you need to make an informed decision about your financial future. We pride ourselves on our commitment to customer service and will work tirelessly to ensure that you receive the best possible experience.