Conventional Mortgage Loans

What is a Conventional Mortgage Loan?

A Conventional Mortgage is a home mortgage loan that is not guaranteed or insured by the federal government. Conventional mortgages are either conforming or non-conforming. A conforming loan meets the requirements and standards set forth by the government-sponsored enterprises of Fannie Mae and Freddie Mac. Whereas a non-conforming loan typically a Jumbo Loan has higher loan limits over the current Florida limit of $484,350. Other types of non-conforming loans that are available sometimes help someone with credit issues such as a recent bankruptcy.

Conventional loans can be either a fixed rate or an adjustable-rate. Fixed-Rate mortgages have a set interest rate for the entire length of the mortgage term. Loan terms range from 10 to 30 years; however, the most common are 15-Year Fixed or 30-Year Fixed. An Adjustable-Rate Mortgage (ARM) has a term of 30 years with a low introductory rate for a fixed period followed by periodic adjustments according to a specific LIBOR or a Treasury Bill Index.

Who Is Eligible for a Conventional Loan?

Qualifying for a conventional loan generally requires the borrower to show an overall sturdy financial profile to qualify. Compared to FHA, VA, or USDA loans, conventional loans tend to have more stringent standards.

While products like loans guaranteed by the Federal Housing Administration (FHA) or VA loans that are guaranteed by the U.S Department of Veterans Affairs and are available to active military and veterans only. Or USDA loans that are backed by the U.S. Department of Agriculture and are geared toward buyers of rural properties.), aim to make buying homes more affordable for low- to middle-income families, with relaxed lending standards, conventional loans have somewhat more stringent standards.

A few of the essential eligibility requirements include:

• Good credit – Generally, credit scores of 620 or higher depending on the transaction, though the FICO requirement may vary from lender to lender.
• Minimum 3% down payment – While you may choose to pay as little as 3% down, an approximately 20% minimum down payment is required to eliminate the need for mortgage insurance.
• Cash reserves – You should have at least two months of cash reserves after closing to cover your loan costs.
• Proof of income – You will need to show a steady income to cover the cost of your loan. Self-employed individuals will need to supply two years of tax returns.
• Debt-to-income – Your debt-to-income ratio should be no more than 45% but can go up to 50% in limited cases. This ratio is the percentage of your monthly gross income that is paid out to recurring debts.