What is a Conventional Mortgage?
Is a Conventional Mortgage right for you?
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Is a Conventional Mortgage right for you?
A conventional mortgage is one that’s guaranteed or by the Fannie Mae or Freddie Mac. They are available through private lenders, such as banks, credit unions, and mortgage companies.
Conventional mortgages have a fixed rate of interest, which means that the interest rate does not change throughout the life of the loan. This gives homebuyers a sense of stability that is not present in the case of, say, an adjustable-rate mortgage. Interest rates for conventional loans tend to be lower than rates for FHA loans yet higher than those of VA loans.
Conforming conventional loans must fall within the limits set by Fannie Mae and Freddie Mac. As of 2024, the limit is $750,000. If the loan surpasses that limit, it becomes a jumbo (nonconforming) loan.
Borrowers must complete an official mortgage application, then supply their lender with the necessary documents to perform an extensive check on their employment, credit history, and current credit score.
Conventional Mortgage Requirements
Documentation Needed
- Proof of income and assets.
- Employment verification.
- A driver’s license/state ID card.
- A valid social security number.
Additional Requirements
- Have a FICO credit score of at least 500 (this number may vary from lender to lender).
- Make a down payment.
- Have a debt-to-income (DTI) ratio of less than 50%. This means that your total monthly debt payments can’t be more than 50% of your pretax income (includes debts that you aren’t actively paying).
- In the case of a conforming conventional loan, your loan must fall within the limits set by Fannie Mae and Freddie Mac.
Down Payment
The requirement for a down payment can vary based on your personal circumstances and the kind of loan or property you’re getting. First-time home buyers in California have the possibility of acquiring a conventional mortgage with a down payment as low as 3% through financial assistance programs.
- If you’re not a first-time home buyer, the down payment requirement is 5%.
- With an adjustable rate mortgage, you need to put down at least 5%.
Advantages
The interest rates tend to be lower.
There are more options in terms of down payment.
Overall, these loans can be very flexible.
FAQ
What types of homes can I purchase with conventional financing?
Conventional loans allow you to purchase single family homes, condos, investment properties, townhomes, lofts and 2nd vacation homes.
If my credit score is low, how can I raise it?
Paying your bills on time, reducing your credit balances, and trying to not apply for credit too often are all ways that you can raise your FICO score.
How long does it take to purchase a home?
The normal turn time for a purchase is about 21 days. This window also assumes you have all your documentation available, provide accurate and verifiable information on your mortgage application and remain diligent in honoring the additional documentation requests that, inevitably, come from underwriting.
Ready to Start?
Let’s get you pre-qualified, ready for a loan, and finally cleared to close.