If you’re looking for home loans, then you probably heard about conventional loansSuch loans make up more than 60% of mortgages issued in the United StatesBut what are conventional mortgages, and how do you know if it’s the right one for you?
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Defining Conventional Loans
Unlike some home loans backed by government agencies like the FHA and VA, Conventional Loans Plano meets the requirements set by the largest home loan buyers in the US – the Freddie Mac and Fannie MaePrivate lenders are the ones who issue conventional mortgagesThese lenders then sell the mortgage to one of the Government Sponsored Entities available.
What Do You Need To Qualify For A Conventional Loan?
Credit Score
Every lender has its own set of requirementsHowever, most will require between 620-640 credit score to qualify for a conventional mortgage.
Occupancy Requirement
In government-backed mortgages, you can only use their home loans to buy a residential homeWhen it comes to conventional loans, you can use this to finance a primary or secondary residence, a rental or even vacation property
Property Type
Conventional mortgage borrowers are eligible to purchase single-family homes, duplex houses, condominiums, 2-4 unit properties, and even townhouses.
Debt-To-Income Ratio
The usual required DTI ratio should not exceed 43%Your mortgage lender will verify this after you provide them with your financial records such as all of your income sources, tax returns, and W2s – to name a few.
Assets
A conventional mortgage borrower will need to have sufficient assets to guarantee the loanAll bank statements and investments are to be verified, and these should be enough to cover for the down payment as well as the closing costs.
Good Read: 6 Financial Prerequisites for Buying a House
What Are The Perks Of Taking A Conventional Mortgage?
Home Equity Head Start
The down payment for a Conventional mortgage varies from one mortgage lender to anotherMortgage lenders will usually ask for 20% down, while there are some who will ask for a lower down paymentThe good news is, the bigger down payment you can afford, the faster you can build your home equityOn the other hand, paying less than 20% down can lead to Private Mortgage Insurance charges.
Locked-In Interest Rates
Since most conventional mortgages are fixed-rate home loans, this means you can lock in the interest rateThis ability allows you to keep the interest rate as it is for the duration of the loanYou’ll get that peace of mind knowing monthly payments will stay the sameYou can also refinance your mortgage and take advantage of lower rates.
Flexible Repayment Plans
Conventional home loan borrowers can choose how long their repayment schedule will beYou can pay off the loan within the span of 10, 15, 20, 25, or even up to 25 yearsThe shorter repayment plan you choose, the better as you get to enjoy lower interest rates and faster home acquisition.
Good Read: 4 ways to pay off your mortgage early
Flexible PMI and Automatic Termination
Conventional mortgage lenders allow you to buy a house even with a down payment lower than 20%While this means you need to pay for Private Mortgage Insurance, you can choose to pay for it upfront, monthly or annuallyLenders are also to terminate PMI once you’re able to pay 80% of the purchase price.
Conventional Mortgages offers stability thanks to its predictable monthly payments and flexible repayment plansWith a fixed-rate home loan like conventional mortgages, you can acquire your dream home and get instant equity provided you put 20% down payment.