What are conventional loans?

What Are Conventional Loans?

We offer conventional fixed and adjustable rate mortgages.  Typically a conventional mortgage is suitable for the borrower with higher credit standards and a larger down payment.  However there are conventional programs with as low as 3% down payment for qualified borrowers.  We also offer fixed rate conventional loans for 2-4 unit investment properties with sufficient loan to value.  Contact your loan officer today to learn more about conventional loan options.

How To See If You Qualify For 3% Down Mortgage

The first thing you should do is see which loan programs are available. You can begin by contacting a trusted local lender like the Applied Mortgage Team.

The next step is to tell the local lender about your goals. What do you want the loan for? You can also ask them about their experience working with lower down payment loan options such as FHA, VA, USDA, State Housing, and Down Payment Assistant Loans.

After that, your Loan Officer will provide you with instructions to review your credit and financials. Once the Loan Officer has your information, they will review your options together to see which programs are the right fit.

• Requirements of Conventional Loans

  Conventional loans are the most common type of mortgage, so it covers the widest homeowner profile. This means that there are many different down payment options (you can purchase a 1-4 unit of condo home; you can purchase a primary residence, a secondary home, or rental property; you can even do renovation under some conventional loan programs). This also means that different loan options come with different requirements. For example, a fixed-rate conventional loan will require different things from the homeowner than an adjustable-rate mortgage (ARM).

  However, these are some common requirements for all types of conventional loans:

  ● A minimum credit score of 620

  ● A maximum debt-to-income ratio of 45%

  ● A minimum down payment of 3%

  ● Proof of employment and income

  ● Credit history with no late payments within the last 12 months

  For more specific requirements, please contact your Loan Officer.

• Additional Guidelines of Conventional Loans

  The particular guidelines will depend on your goals. For example, purchasing a 2-unit home as a primary residence has a different down payment requirement than purchasing a single family home as a primary residence.

• Terms of Conventional Loans

  Conventional loan terms depend on three things:

  ● The type of property (1-4 unit or condo)

  ● The intended use of the property (primary residence, second home, or rental property)

  ● The borrower's credit scores

  ● The borrower's down payment

  ● The borrower's debt-to-income ratio

  Typically, the terms will be 10, 15, 20, or 30 years. But for more specifics, contact our team so we can walk you through what terms will be best for your budget.

Is It Bad To Only Do A 3.5% Down Payment When You Buy A Home?

Putting down less or more money isn't necessarily good or bad. It all depends on your specific financial needs and how your house and mortgage fit into the rest of your financial picture. The most important information to consider is your own budget and goals. You'll want to have a clear idea of what you're comfortable paying for down payment and closing costs, and what you're comfortable paying on an on-going basis for the monthly payment.

NOTE: Right now is a great time for lower down payment buyers or first time homebuyers to jump back in the market, since the market has softened a bit.

The Pros and Cons of Conventional Loans

PROS

• The term is usually a fixed rate

• They have the least stringent requirements regarding the property type and the intended use of the property

• If you are doing less than 20% down payment, the private mortgage insurance cost is usually also slightly lower than other programs

POTENTIAL CONS

• They usually require a higher credit score than some of the government sponsored loan programs (FHA, VA, USDA)

• If your credit score is on the lower side, then you may be penalized by needing to have a higher rate, higher PMI, or higher closing cost

How To Convert An FHA Loan To A Conventional Loan

Many homebuyers use an FHA mortgage to purchase their first home. It is a great loan program for lower down payment, lower credit scores, and less income history. However, the downside to FHA is that the homebuyer pays an FHA mortgage insurance premium for the lifetime of the loan. Another downside is that they can only have one FHA loan at a time (except under special circumstances like relocation scenarios). 

For those reasons, people will sometimes wish to convert their FHA loan into a conventional loan down the road if they keep the property. Here are your options:

• You can either get rid of your FHA loan by selling the home and paying it off

• OR you can refinance, which means replacing your FHA mortgage with a new conventional mortgage

How Often You Can Buy A House For Only 3% Down Payment

Most of the lower down payment loan options are for first time homebuyers or for people who do not own multiple properties. However, there are some exceptions.

If you already used a lower down payment loan option and you are looking to buy your next home with a lower down payment, contact our team at Applied Mortgage to see what programs might be available for you.