Eight Things You Must Know About Conventional Loans

The conventional loan is one of the most commonly used loan products to purchase a home. Also known as a conforming loan, this loan complies with Fannie Mae and Freddie Mac lending requirements. If you’re considering purchasing a new home, here are eight things you must know about conventional loans.

1. The qualifications for a conventional loan are a bit steeper than the FHA loan. The minimum credit score is 620, and debt to income (DTI) cannot exceed 45%.

2. You can have a co-borrower that does not occupy the home. This means your parents or a friend can co-sign on the loan, but you can be the sole resident of the home.

3. The minimum down payment is 5%. However, if you put less than 20% down, you will be required to pay Private Mortgage Insurance (PMI.)

4. With 20% down PMI is not required, and you have the option to waive escrows. Escrow items are property taxes and insurance, and sometimes, association dues.

5. If you are interested in purchasing a condominium, 10% to 20% down makes the underwriting process simpler, and increases the likelihood of the loan being approved. With less than 10% down, there is a risk that the entire purchase could fall apart at the 11th hour.

6. A conventional loan can be used for a purchase or a refinance. The maximum loan amount is $424,100 as of 2017.

7. If you are putting less than 20% down and required to pay PMI, the rate will be based upon your credit score. The higher the credit score, the lower the rate.

8. The conventional loan is eligible for closing costs credits or PMI paid by the lender. To qualify for this, the buyer must have high credit, and should expect a higher interest rate.

Are you thinking about buying a home? Let’s talk about your loan options. Give me a call or reach out in the comments below.