Is a Conventional Mortgage the Right Loan For your?
A conventional or conforming mortgage loan is type of loan that is not insured or guaranteed by the federal government. A conforming conventional loan follows the guidelines as set forth by Fannie Mae and Freddie Mac, and a non-conforming conventional loan doesn’t follow these guidelines.
If you have good credit, a steady income and can afford the down payment, conventional loans often offer lower interest rates than their government-insured counterparts. Whereas FHA loans require a property to meet strict eligibility guidelines as far as price, location and habitability are concerned, conventional lenders are not bound by the same bureaucratic regulations. Thus, lenders can often process conventional mortgages more quickly than government-insured mortgages. Also, the higher down payment requirement of conventional loans helps you build equity more quickly.
Conventional mortgages may be fixed-rate or adjustable-rate mortgages. In fact, this mortgage loan type adheres to guidelines that are specifically set by Fannie Mae and Freddie Mac. Most conventional loans require a down payment of at least 5% of the loan amount for a fixed rate term or 10% for an adjustable rate. For cash out Conventional financing, a borrower will be allowed to take out up to 80% of your home’s value.
Conventional loans can have better interest rates than non-conventional loans and can be a great option for those with a 20 percent down payment. However, even if the borrower does not have a 20 percent down payment, it is still possible to get a mortgage. By putting less down and accepting a possibly higher interest rate, the borrower can still get financing through a non-conventional loan.
Depending on the state and county that you live it, the maximum loan limit will vary, which is good to know for first time home buyers. You can apply for pre-approval of a loan which helps you determine what you can afford to borrow (pre-approval is not guaranteed) or you can apply for a loan after you find a property you are interested in buying. If you decided to put less than 20% down on your purchase, you will be required to pay PMI (Private Mortgage Insurance). PMI insures the lender for the amount of the loan above 80%, which will be added on to the borrower’s monthly payment. For example, a $100,000 home with a $90,000 mortgage has a 90 percent LTV. The PMI Company provides insurance to the lender for the mortgage loan balance over 80%, $10,000 for the lender.
CONDO REQUIREMENTS FOR A CONVENTIONAL LOAN
In the state of Florida, condo purchase requirements are different than other states. For a condo primary home, a minimum of 10% is required. For an occupancy type being a 2nd home condo, a minimum of 30 % down will be required. Very few lenders are currently providing lending for condo investment property loans in the state of Florida, and their lender down payment requirements will vary between each lender.
What are the conventional loan requirements?
Most lenders require a credit score of at least 620 in order for you to be eligible for a conventional loan. Additionally, you shouldn’t have a debt-to-income ratio that exceeds 45%.
What down payment is required for a conventional loan?
With a conventional loan, you must put down at least 5% of the home’s purchase price but it’s generally recommended that you put down 20%. If you don’t put down 20% of the home’s price, you will have to pay private mortgage insurance (PMI) until you have reach 80% equity in the home and can refinance.
What types of properties are eligible for conventional loans?
Condos, modular homes, second homes, investment properties, primary residences, planned unit developments, manufactured homes and 1-4 family residences are all eligible for conventional loans.
What are the typical closing costs associated with conventional loans?
Closing costs will typically cost you anywhere from 3% to 9% of the home’s total price. Conventional loan closing costs normally include loan discount fees, title services, lender fees, the appraisal, credit report fees and other miscellaneous fees.