When you’re preparing to buy a home, it’s important to decide which kind of loan you’ll pursue. FHA loans cater to new homebuyers whose credit history isn’t the strongest. The USDA insures home loans in rural areas, and the Veteran’s Administration insures loans for service members. Borrowers with better credit and a larger down payment often apply for and receive conventional loans. These loans are available to anyone who can meet the lender’s often strict requirements. Is a conventional home loan right for you? Call our specialists today to learn more.
What Is A Conventional Loan?
Conventional loans are loans that are backed by a private lender rather than the government. Most conventional loans are backed by a bank or mortgage firm. These loans are the bread and butter of the mortgage industry and make up the majority of home loans in the USA. However, their requirements can be tough for new homebuyers or anyone with a low credit score. If you’re unable to qualify for a conventional loan for any reason, Txhomenow will connect you with other options whose requirements are more forgiving, such as FHA Loans.
When you apply for a conventional loan, the mortgage lender will look at your income, your credit score, and your amount of debt to decide if they find you creditworthy. Based on what they know about you, they will either approve the loan, deny it, or approve you for a lower amount than you’d hoped to receive.
Requirements For A Conventional Loan
Credit. Lenders need to know that you can afford the loan and have the means to repay it, or else they will not approve your application. They look at your credit score and credit history to decide if you’re too risky to lend money to. Some things they prefer to see include a long credit history, plenty of unused available credit, and no accounts in collection. Most conventional lenders require you to have a credit score in the mid or high 660s.
Income. There will be a verification process where you submit proof of income. This can be anything from a tax return or pay stubs to a history of social security check deposits. A high debt-to-income ratio scares some lenders off because they worry that you won’t be able to afford your mortgage. Be sure to report all your sources of income accurately. The longer it takes to verify your income, the longer it will take to process your loan.
Assets. There will also be the verification of your assets. Bank and investment statements will be requested by the lender to ensure they will cover a down payment and any closing costs. Include all your assets; the more accurately you represent your assets, the faster the lender can look at them and decide if you’re eligible for a mortgage.
More About Conventional Loans
Loan limits vary widely depending on your income, your credit rating, and your area’s cost of living. If you have questions about conventional loan limits in your area, don’t hesitate to ask your down payment specialist when you call. Interest rates on conventional loans are low right now, and having a down payment can improve your chances of being approved for one. The recommended down payment for conventional loans is 20%, but the more you can put down, the more money you will save over the life of the loan. Conventional loans can sometimes be harder for first time home buyers to secure due to their down payment and credit requirements.
Conventional vs. FHA Loans
The Federal Housing Administration (FHA) insures loans with more generous qualifying guidelines. Approval comes a bit easier for these loans. The FHA is the nation’s largest home loan insurer, and homeowners find their terms more agreeable than the stringent standards of most conventional loans.
For example, FHA loans only require the borrower to have a 580 credit score to get maximum financing and a 3.5% down payment. Conventional loans typically require a credit score of 620 or higher and a 20% down payment.
FHA loans require an upfront Mortgage Insurance Premium (MIP) at closing and a monthly mortgage insurance premium. The MIP is required for the life of the loan, unless the borrower puts down 10%, which reduces the MIP to eleven years.
Txhomenow: Your Source for Down Payment Assistance
Loans are not a one-size-fits all solution. What works best for one borrower might be out of reach for another. At Txhomenow, we want to make sure you take advantage of every program available to reduce your down payment, including loan programs with favorable terms. We connect you to down payment specialists who can determine your eligibility in as few as 48 hours! Get started today by calling us or taking our online eligibility quiz.
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