Conventional Purchase

If you’re preparing to buy a house, you’ll likely consider a conventional mortgage loan. After all, it’s the most popular option among homebuyers.

Those who meet the requirements to qualify for conventional loans often obtain flexible home financing that makes owning a home more affordable.

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What is Conventional Mortgage Loan?

You have several options when choosing the right loan to buy a home. Mortgage loans often differ depending on the requirements to qualify and the terms offered, such as the loan’s length, interest rate and minimum down payment.

Conventional mortgages are part of the standardized mortgage options established by two government-sponsored enterprises, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation). “Fannie” and “Freddie” also define the criteria for borrowers, and those criteria provide the rationale for the requirements to qualify.

If you have a higher credit score, a conventional mortgage is a great choice for financing your home. Conventional mortgages include several scenarios for the down payment, closing costs and monthly payments. (If you have a lower credit score, the requirements for a conventional mortgage may be higher.)

There are other common loan programs, such as those offered by the FHA (Federal Housing Administration) or VA (Veterans Administration). FHA and VA loans are distinct from conventional mortgages in that they’re insured by the government, and they allow for more flexible rules to qualify.  (However, loan terms may be less able to be customized or individualized.)

How to Get a Conventional Loan

If you’d like to discover your potential to qualify for a conventional loan, connect with us at Compass Mortgage! To help you understand the process and get started, we’ve outlined the steps and the documentation needed below.

The Financing Process

  • Homebuyers often start by . . .
    • Requesting a quote for their interest rate OR
    • Beginning an application with Compass Mortgage
    • Working with Compass Mortgage to obtain a credit report and evaluate their finances
  • As you share information about your potential purchase, we will. . .
    • Arrange for an appraisal of the home you wish to buy to determine value
    • Discuss your individual options, including the terms for which you qualify
    • Detail the documents you need for underwriting to begin the loan on a solid foundation

We’re with you through each and every step . . . all the way to closing and finalizing your loan and purchase! 

Conventional Loan Requirements

  • Common requirements include . . .
    • Credit score of 620 or higher (preferable; result often better interest rate)
    • Documentation which confirms debt-to-income ratio (DTI) at or below 50%
    • Employment verification and history
    • Down payment of 3% or more (based on income, number of home purchases, other factors)
    • Private Mortgage Insurance (PMI) if down payment less than 20% or until your equity in the home is 20% or more

 

If you have any questions, we’re here to help!

 

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Conventional Loan FAQs

Financing a home is an important investment. It’s OK to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.

  • Conventional Loan
    • Flexible financing options
    • Stricter requirements to qualify
    • Better options regarding PMI, term length, closing costs, plus lower interest rate

 

  • FHA Loan
    • Flexible financing options
    • Because insured by federal government, requirements to qualify less strict
    • More affordable, especially if credit score is lower
    • Less options than a conventional loan, but provides competitive interest rates and possibilities for lower down payment
  • Consider . . .
    • How much you’ve been able to save for a down payment
    • The value of the house you want to buy
    • How the amount of the down payment affects your mortgage (especially the monthly payment)

 

  • Typical down payment (conventional loan)
    • Ranges from 3% (first-time buyers) to 20%
    • Down payment of 20% (or more) eliminates need for PMI (which carries a monthly premium)

 

Several factors are considered to determine the minimum down payment. (Talk with a Compass Mortgage loan officer to find out more.)

  • Private Mortgage Insurance (PMI) required for conventional loans without down payment of 20% or more
  • Not required once 80% Loan-to-Value ratio (LTV) achieved
  • Protects the lender if you stop making payments on your mortgage loan
  • Paid for via monthly premium
  • FHA loans require PMI for longer duration, potentially over the entire length of the loan
  • The total amount of money (maximum) a loan applicant can borrow with a conventional loan
  • If the home you wish to buy exceeds (or falls below) the limit, you may need to seek other financing options
  • Loan limits align with other standards set for conventional loans, are set annually by Fannie Mae and Freddie Mac

 

Requirements vary from state to state, also in high-cost locations.

  • At closing, you’ll need to account for various upfront costs and costs included in your ongoing monthly payment (all will be stated as your loan is processed, prior to closing)
  • Closing costs include loan origination fees, appraisal cost, title insurance and some other miscellaneous charges, ranging from 2-4% of the loan total

 

Don’t forget! Compass Mortgage makes mortgage specialists available to you, so contact us!

CONVENTIONAL LOAN BENEFITS
  • Most common mortgage loan
  • Flexible requirements
  • Down payment as low as 3%
  • Term length options
  • Fixed or adjustable interest rate
  • Lower rates with higher credit score
  • No mortgage insurance after attaining 20% equity
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