For many potential buyers, conventional mortgage financing that follows the underwriting guidelines offered by mortgage giants Fannie Mae and Freddie Mac presents the best mortgage loan.
While all potential borrowers are unique, you can be part of the group making a decision between the low down payment offered by the FHA loans or the lower monthly payment than conventional financing options typically present in relation to FHA loan financing.
Due to the lack of government insurance, conventional loans represent a higher risk for lenders.
So, if you want to finance your new home purchase with a conventional loan, you often have to meet more stringent credit and income requirements than those who finance their properties using an FHA loan or VA FHA mortgage loan.
If you have good credit, stable income and can afford the down payment, conventional loans often offer lower interest rates than their government-insured counterparts.
They may also be easier and faster to close than their government-backed counterparts.
Thus, lenders can often treat conventional mortgages faster than government-insured mortgages. In addition, the higher down payment requirement for conventional loans helps you build equity faster.
Most conventional mortgages require you to repay the entire loan amount at a fixed interest rate over a 30-year period.
You can also opt for a floating rate mortgage in which the interest rate is not fixed, but rather linked to the current market rate. A borrower with a floating rate FHA mortgage loan can expect his interest rate to fluctuate periodically.
A conventional purchase program is a great option when looking to buy a new home as a principal residence, second home or investment property. Be careful though, the three types of occupation come with a slightly different set of rules and guidelines on how they should be documented.
As with most mortgage underwriting guidelines, as you progress through the spectrum of risk, from principal residence to investment property, the guidelines pile up on each other. other.
The basic underwriting guidelines for Fannie Mae and Freddie Mac are established. In general, the basic guidelines that are necessary for all borrowers to meet certain credit score, income, work history, debt to income and minimum down payments.
Here are some of the things a lender will consider when considering financing.
- Your total monthly expenses
- Your total gross income per month
- Your employment history
- Your credit score and your payment history
- Your assets (audit, savings and retirement accounts)
A common misconception about conventional refinancing is that you need 20% equity in order to qualify. The reality is conventional financing allows you to refinance with as little as 5% of the equity in combination with mortgage-financed, monthly, or paid lender insurance.
Why are conventional mortgages so big?
The conventional purchase program has very competitive prices compared to other available programs. This can make a big difference in your monthly mortgage payment and even the interest you will pay during the term of the loan.
Your mortgage professional must clearly and concisely outline the advantages and disadvantages between conventional mortgages and those offered by the Federal Housing Administration (FHA loans), the Veterans Administration (VA) and the US Department of Agriculture (USDA).
That being said, let’s talk about conventional loans that tend to offer a lot more variety.
With a conventional loan, which includes both compliant and non-conforming loans, you can get almost anything from a one-month ARM to a 30-year loan, and all rest.
So, whether you want a 10-year fixed mortgage, or a 7-year, 20-year fixed or other ARM, a conventional loan will likely provide this mortgage option and will be the way you want to go.
Another advantage of conventional mortgages is that they are available to just about every bank and lender in the country. This means that you can use any bank and/or buy your rate a little more. Not all lenders offer FHA loan products, so you might be limited in this regard.
In addition, conventional loans can be used to finance just about any property, while some condo complexes (and some homes) are not approved for FHA loan financing.
Even though this program is harder to qualify, you need to consider it, especially if you have equity in your home, above-average credit, or want to avoid mortgage insurance.
What are the typical qualification requirements?
- Minimum credit score 640 (620 may be allowed under certain circumstances)
- Total debt to income below 45%
- Housing debt to income ratio below 35%
- No major recent derogatory credit – bankruptcy, foreclosure or short sale
- You must verify your down payment and obtain funds from an authorized and documented source of assets
- Verifiable income, usually 2 years, with exceptions for recent graduates and other major life events