The Conventional Mortgage: What Borrowers Should Know

Posted on Sep 28 2018 - 7:54pm by Admin

loan application form with a pen, calculator, house keys, and a lot of coinsWhen shopping around for a house to buy, you have plenty of home loan options to choose from, with various interest rates, eligibility criteria, loan amounts, and related fees. Knowing about the many options available to you would help you select the best option and lender specific to your budget and needs. One of these options is a conventional home loan, which is a mortgage loan that isn’t insured by a federal government like the VA or Veterans Affairs, FHA or Federal Housing Administration, or the DOA, Department of Agriculture.

Do You Qualify for a Conventional Mortgage?

Generally speaking, individuals with an excellent credit history and established credit are the best candidates for conventional mortgage loans, says PRMI Tim Halverson, a top lender in Folsom, CA. Specifically, candidates must satisfy the following eligibility requirements:

  • A DTI or debt-to-income ratio of about 36%, no higher than 43%. Your DTI the sum of all your monthly payments versus your monthly income.
  • At least a 680 credit score, but the higher, the better. For instance, a higher score, say 740 would get you a much lower mortgage interest rate and much better loan terms.
  • The ability to put down 20% (or higher) down payment. While lenders could and do accept a down payment lower than 20%, they would usually require you to also purchase private mortgage insurance or PMI until such time that you could build 20% equity in your property.

If you qualify for a conventional loan, you get to enjoy a couple of advantages. For one, your loan application would be processed faster than government-insured loams since you would be working directly with your lender, and won’t have to wait for federal approval. Additionally, you won’t have to purchase PMI (considering that you could put 20% down), which is a standard requirement for certain federally backed home loans.

Shop Around for The Best Deal

Because federal regulations do not constrain conventional loans, you could find pick from a wide variety of lenders, meaning different interest rates, loan terms, and related fees. As you already know, over time, even the slightest difference in rates and fees could make a huge difference. Each lender would assess your credit risk and worthiness differently based on your income, credit history, and assets so you need to look around to ensure that you end up with the best mortgage deal.