Conventional Loans: What are they? Who are they for?

Conventional loans are among the most popular of all the loan options. For those that have good credit, income and down payment, applying for this loan is fast and easy. 

Two Types of Conventional Loans

There are two types of conventional loans: Conforming and Non-Conforming. 

Conforming

To qualify for a Conforming Conventional Loan, the loan must adhere to the guidelines set forth by Fannie Mae and Freddie Mac. These government-owned enterprises set forth the specific guidelines for these loans. The most important factor being the loan limit. The loan limits can vary depending on if you live in a high-cost area or not, however, the general limit is $453,100 but can be as high as $679,650.

Non-Conforming

These are the loans that exceed the loan limit and are also called Jumbo loans. These are not purchased by Freddie Mac or Fannie Mae and are backed by private lenders. Because these are backed by private lenders, these loans carry more risk but offer more flexibility. 

Who qualifies for this loan?

There are various factors you must meet to qualify including: 

Credit

You need to have good credit in order to qualify for one of these loans. “Good” credit is defined as at least a 620, however, a 680 or higher is preferred. Additionally, satisfactory credit history is beneficial.

No recent bankruptcy

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.

Down Payment

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.)

Reserve Money

You need at least a one-month mortgage payment in reserve. Whether that be checking, savings or 401k. When applying for the loan, you need to show you have the money to start paying off the loan!

Mortgage Insurance

If your down payment is less than 20% you must get mortgage insurance. 

If you think that this loan is right for you, contact us here! 

 

2020-02-04T08:10:49-08:00