For people with good credit, good income, and a down payment, applying for conventional mortgage is simple and fast.
What is a conventional mortgage?
Conventional mortgages conform to the guidelines of government-owned enterprises Fannie Mae and Freddie Mac. They are also known as “conforming” loans.
Conventional home loans usually are limited to $453,100 or less (One unit property). If you live in a high-cost area, however, your loan limit may be as high as $679,650 (One unit property). Call us at 1-360-676-9600 to ask about the conventional loan limit in the area where you’re looking to buy. If your loan is higher than the conventional lending limit (this is called a Jumbo Loan), it may have a higher interest rate.
Who qualifies for a conventional mortgage?
To be approved for a conventional loan, you will need to meet the following criteria:
#1: Good credit.
In order to attain a conventional loan, the borrower must have good credit. Good credit is defined as a credit score of at least 620, and preferably 680 or higher. You also need a good credit history, so it’s clear you pay your debts regularly and on time.
#2: No bankruptcies in the last 2-4 years.
You cannot have had a bankruptcy within two years of applying for a conventional mortgage. You can still apply—but you have to wait at least two years from the date of discharge of bankruptcy.
- Two years on a bankruptcy with extenuating circumstances only.
- Chapters 7 or 11 – A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.
- Chapter 13 – A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows: two years from the discharge date, or four years from the dismissal date.
#3: A minimum down payment of at least 3%.
You can qualify for a conventional mortgage with a minimum of 3% down payment, depending on Occupancy, CLTV, first time homebuyer and other additional factors.
- With a 5% down payment, the guidelines are more flexible.
- And with 20% down (or equity), you can avoid having to pay PMI (Private Mortgage Insurance) – which really reduces your monthly payment. (Ask us about other ways you can avoid paying PMI.)
#4: Money in the bank.
You need at least one month’s monthly payment in reserve upon applying for a conventional loan, and you need to retain at least that amount at least until your loan closes. For example, if your monthly payment is $1,700, you need at least $1,700 in reserves. Reserves can take the form of checking accounts, savings accounts, or 401ks, among others. – Reserves are subject to loan approval, the number of properties a borrower may own along with Loan to Value, and credit scores play a factor as well in reserve requirements.
#5: Mortgage insurance.
Conventional mortgages require mortgage insurance if the loan is for 80% Loan to Value or more of your property’s total value. (The percentage of your loan amount, compared to the value of your home, is called “Loan-to-Value”, or LTV.)
Would a Conventional loan be the right choice for you? We can help you understand your options and choose the loan program that best meets your needs and your financial goals.