It’s rare for a person to have more than enough money to buy a house outright without going through the messy process of a mortgage. But if you’re like the rest of the population, you are likely to be looking for a type of loan that would suit your needs and qualifications. If you’re already in search of a type of loan, you may have come across or heard of a conventional loan before. So what is a conventional loan? A conventional loan is a type of mortgage that is not offered by the Federal Housing Administration and the Veterans Administration. However, mortgage companies, banks, and credit unions, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation offer such loans.
What are the requirements for conventional loans?
Basically, there are a few things that you will need to have in order to qualify for a conventional loan. Some of the requirements are also being asked for other mortgage. Here’s what you need:
- Credit – you need to have a credit score of at least 620-640 depending on the lender you’re applying for the loan from.
- Occupancy – unlike government-backed loans, conventional loans can be used to finance a number of properties inducing a primary residence, secondary home, rental property, or vacation property.
- Property type – you could apply for a conventional loan if you’re after a single family home, condominiums, duplexes, and 2-4 unit properties.
- Income – your income will be verified and your debt-to-income ratio must not go beyond 43%.
- Assets – your assets will also be verified. Investment and bank statements included. The total amount of funds must be enough to cover for a down payment plus closing costs.
Down payment guidelines
Basically, there are no strict down payment guidelines for conventional loans. Normally, the down payment is around 5-20% of the overall sales price. A private mortgage insurance policy will be required for loans that have less than 20% down payment with a mortgage above 80%. A PMI or private mortgage insurance policy will compensate for the mortgage threshold and the down payment in case the borrower defaults payment. If uncertain, you could always contact your local mortgage broker for help.
Limits of a conventional loan
There are limits to conventional loans and you should be aware of them. The limits vary depending on the area where you are in. For low-cost areas, the limit is at $453,100. However, for high-cost areas, you could get a maximum of $679,650. It helps to know how much you could get depending on where you are located. This will help you figure out how much you are eligible for and will allow you to narrow down your choices. You could also consult experts like MB Mortgage Pros for more information regarding mortgages.
In the U.S., around 60% of the total home loans served are made up of conventional loans. If you are able to shell out a 20% down payment of more, you can enjoy lower interest rates. However, conventional loans prove difficult for first time home buyers since they require higher credit scores to be able to qualify.
Call MB Mortgage Pros if you want to know more about conventional loans.
MB Mortgage Pros
630 Chestnut Road
Myrtle Beach, SC 29572