Conventional Loans

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Are you looking for a low-cost loan with some great benefits for saving money over the life of your loan? A Conventional Home Loan may be a perfect fit.

Lower cost than many government programs that require mortgage insurance
Available for a primary and a second home
Choose a fixed-rate or adjustable rate mortgage (ARM)
Wide range of down-payment options

What Is a Conventional Home Loan?

Conventional loans can be a great lower cost mortgage option for people who can afford to take advantage of some of its key benefits. One of these benefits is the lack of an additional mortgage insurance payment for borrowers who are able to make a 20% down payment. Even if you’re not able to put 20% down at close you can still have your mortgage insurance removed, after you reach approximately 20% in equity, without having to refinance your property.

Borrowers who are refinancing also often choose a conventional loan to save money compared to their existing mortgages. For example, FHA borrowers may transition to a conventional loan in order to eliminate mortgage insurance while getting a great rate. (the newer FHA loans have PMI the life pf the loan)

Another key benefit of a conventional loan is its flexibility to be applied to many different kinds of properties. Conventional loans can be used to finance a primary residence, a second home, or in some cases even investment/rental property.

Conventional loan borrowers have the choice of opting for either adjustable-rate (ARM) or fixed-rate loans, depending on their plans for the property. While many prefer the reliability of a fixed rate that stays the same over the life of the loan, some will opt for an adjustable rate if they want to take advantage of the lower rate and don’t plan on staying in the house long enough to be at risk of seeing their payment increase.

While most conventional loans do require a down payment of some kind, many borrowers are surprised to learn that you can qualify for a conventional loan with as little as 5% down. If you wish to avoid mortgage insurance, you will need to put at least 20% down or wait until you reach approximately 20% equity in the home to cancel it.

Who Is Eligible for a Conventional Loan?

While products like VA, USDA and FHA loans are structured to make home buying possible for a wider range of people, conventional loans have somewhat more strict standards. Qualifying for a conventional loan generally requires the borrower to show an overall stronger financial profile to the lender in order to qualify.

A few of the key eligibility requirements include:

Good credit – Generally credit scores of 620 or higher, though the FICO requirement may vary from lender to lender.
Minimum 3-5% down payment – While you may choose to pay as little as 3-5% down, an approximately 20% minimum down payment is required to eliminate the need for mortgage insurance.

Cash reserves – They may require you to have reserves to cover loan after closing.

Proof of income – You will need to show steady income to cover the cost of your loan and self-employed individuals will need to supply a min. of two years of tax returns.
Debt-to-income – Your debt-to-income ratio should be no more than 45%, but can be stretched in some cases. This is the percentage of your monthly gross income that is paid out to recurring debts.