CONVENTIONAL LOANS

Conventional home loans are the most common type of mortgage in the country. These loans are not insured or guaranteed by the government, unlike FHA and VA loans. Lenders offer conventional loans with varying terms and interest rates, and borrowers typically need to have good credit and a stable income to qualify. Conventional loans can be used to purchase primary residences, second homes, or investment properties. They also offer the flexibility of choosing between fixed or adjustable interest rates. While conventional loans may require a higher down payment than government-backed loans, they often have lower interest rates and fewer fees. Additionally, borrowers can avoid mortgage insurance if they put down at least 20% of the home’s purchase price. Overall, conventional home loans are a popular choice for those who meet the qualifications and want to own a home without government involvement.

Conventional Loan Overview

Conventional home loans are the most popular type of mortgage in the US. Unlike FHA and VA loans, conventional loans are not insured or guaranteed by the government. Lenders offer conventional loans with varying terms and interest rates, and borrowers usually need good credit and stable income to qualify. Conventional loans can be used to purchase primary residences, second homes, or investment properties. They offer the flexibility of fixed or adjustable interest rates, which can be very beneficial for borrowers who want to have more control over their monthly payments.

Although conventional loans may require a higher down payment than government-backed loans, they often have lower interest rates and fewer fees. Moreover, borrowers can avoid mortgage insurance if they put down at least 20% of the home’s purchase price. With a conventional loan, borrowers can purchase the home of their dreams and build equity over time, knowing that they are in full control of their mortgage payments.

Overall, conventional loans are a popular choice for people who want to own a home without government involvement and have the qualifications required. With so many conventional loan options available, borrowers can find the loan that suits their needs by comparing different lenders. These loans have certain advantages that make them appealing to many borrowers, including lower interest rates, greater flexibility, and no mortgage insurance requirements.

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How to Qualify for a Conventional Loan

Pre-approval is the first and most important step towards acquiring your Conventional Loan. Whether you’re a first-time home buyer or seeking to refinance your current home, getting pre-approved helps narrow your focus to properties that fit your budget, establish credibility with sellers, and expedites both the loan funding and closing process.

Requirements for First-Time Home Buyers:

First-time homebuyers can benefit from a conventional loan because it offers greater flexibility in terms of interest rates and repayment options. Additionally, borrowers can avoid paying mortgage insurance if they put down at least 20% of the home’s purchase price, which can help reduce their monthly mortgage payments. With a conventional loan, first-time homebuyers can build equity over time and have more control over their mortgage payments, making it a popular choice for those looking for greater flexibility and options in their home financing.

- Good Credit Score: First-time homebuyers need a good credit score of at least 620 to be approved for a conventional home loan. Lenders look at credit scores as an indication of how responsible borrowers are with credit.
- Low Debt-to-Income Ratio: Lenders also consider a borrower’s debt-to-income ratio, which should be no higher than 43%. This means that the borrower’s total monthly debt payments, including the mortgage payment, should not exceed 43% of their gross monthly income.
- Proof of Income and Employment: First-time homebuyers need to provide proof of income and employment to show lenders that they have a steady source of income to repay the loan.
- Down Payment: A down payment of at least 3% of the home’s purchase price is typically required for a conventional home loan. However, borrowers can avoid paying mortgage insurance if they put down at least 20% of the home’s purchase price.
- Property Appraisal: Lenders require a property appraisal to ensure that the home is worth the amount being financed. The appraisal also determines the maximum amount the lender is willing to finance.
- Closing Costs: First-time homebuyers need to have funds available for closing costs, which can range from 2% to 5% of the home’s purchase price. These costs include appraisal fees, title insurance, attorney fees, and other fees associated with the home purchase.

Requirements for Refinancing into a Conventional Loan:

Refinancing into a conventional home loan can offer several benefits for homeowners. Firstly, it can help reduce monthly mortgage payments, which can free up more money for other expenses. Secondly, homeowners can take advantage of lower interest rates and switch from an adjustable-rate to a fixed-rate mortgage, providing more financial stability. Thirdly, refinancing can allow homeowners to shorten the term of their mortgage and pay it off faster. Finally, by refinancing, homeowners may be able to access the equity in their home, which can be used for home improvements or other important expenses.

- Sufficient Equity: Homeowners looking to refinance into a conventional home loan need to have sufficient equity in their home. This typically means having at least 20% equity in the home, although some lenders may allow refinancing with as little as 5% equity.
- Good Credit Score: Just like with first-time homebuyers, homeowners looking to refinance into a conventional home loan need to have a good credit score of at least 620. This demonstrates to lenders that they have a history of responsible credit use.
- Low Debt-to-Income Ratio: Lenders also look at a borrower’s debt-to-income ratio, which should be no higher than 45% for a conventional home loan refinance. This means that the borrower’s total monthly debt payments, including the mortgage payment, should not exceed 45% of their gross monthly income.
- Proof of Income and Employment: Homeowners need to provide proof of income and employment to show lenders that they have a steady source of income to repay the loan.
- Property Appraisal: Lenders require a property appraisal to ensure that the home is worth the amount being financed. The appraisal also determines the maximum amount the lender is willing to finance.
- Closing Costs: Homeowners need to have funds available for closing costs, which can range from 2% to 5% of the home’s appraised value. These costs include appraisal fees, title insurance, attorney fees, and other fees associated with the refinancing.

TYPES OF Conventional Loans

Fixed-Rate Mortgage

A mortgage with a fixed interest rate for the entire term of the loan, typically ranging from 10 to 30 years.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that adjusts periodically, based on an index, typically every 1, 3, or 5 years.

Jumbo Loan

A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, typically used for high-priced properties.

Conforming Loan

A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan limits and underwriting standards.

FHA Loan

A mortgage insured by the Federal Housing Administration, which allows for a lower down payment and more lenient credit requirements.

VA Loan

A mortgage guaranteed by the Department of Veterans Affairs, which provides financing options for eligible veterans and their families.

HomeReady Loan

A mortgage program offered by Fannie Mae, which provides flexible underwriting requirements and low down payment options for low to moderate-income borrowers.

Home Possible Loan

A mortgage program offered by Freddie Mac, which provides low down payment options and flexible sources of funds for low to moderate-income borrowers.

It’s important to find the right type of loan that fits your unique financial situation. Contact one of PRMG’s home mortgage experts today! We’ve been serving customers just like you for over 22 years. Your mortgage expert’s guidance can help you make an informed decision and secure your Conventional Loan.

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Pros of securing a CONVENTIONAL Loan

Lower Interest Rates: One of the main advantages of securing a conventional home loan is that it typically comes with a lower interest rate compared to other types of loans. This means that you will pay less in interest over the life of the loan, saving you money in the long run.
Higher Loan Limits: Conventional home loans also generally have higher loan limits than other types of loans. This means that you can borrow more money if you need it to purchase a more expensive home or to complete home renovations.
Flexibility: Conventional home loans offer a lot of flexibility in terms of loan terms and repayment schedules. You can choose from a variety of loan terms ranging from 10 to 30 years, and you can also choose from different repayment schedules, including fixed-rate and adjustable-rate options.
No Mortgage Insurance: Another advantage of securing a conventional home loan is that you may not be required to pay mortgage insurance. If you are able to make a down payment of at least 20% of the home’s purchase price, you can avoid having to pay this additional cost.
Easier to Refinance: Conventional home loans are generally easier to refinance than other types of loans, especially if you have built up equity in your home. Refinancing can help you save money by lowering your monthly payments or reducing the interest rate on your loan.
Resale Value: Because conventional home loans are so popular, homes that are financed with this type of loan may have a higher resale value than homes financed with other types of loans. This can be beneficial if you plan to sell your home in the future.

Cons of securing a CONVENTIONAL Home Loan

Higher Credit Score Requirements: Securing a conventional home loan typically requires a higher credit score than other types of loans, which may be a challenge for some borrowers.
Larger Down Payment: Conventional home loans usually require a larger down payment, which can be difficult for some borrowers who may not have enough savings.
Stricter Debt-to-Income Requirements: Lenders usually require a lower debt-to-income ratio for conventional loans, which means that borrowers with high levels of debt may have trouble qualifying.
Longer Processing Time: Conventional home loans can take longer to process than other types of loans, which can be frustrating for borrowers who are in a hurry to close.
Private Mortgage Insurance: Borrowers who cannot afford a 20% down payment may be required to pay for private mortgage insurance (PMI), which can add significant cost to their monthly payments.
Limited Government Backing: Unlike some other types of loans, conventional home loans do not have the backing of a government agency, which means that lenders may be less willing to take on riskier borrowers.

FAQ’s About Conventional Loans

What is a Conventional Home Loan?

A conventional home loan is a type of mortgage that is not backed by the government, unlike FHA and VA loans. It typically requires a higher credit score and a larger down payment than government-backed loans. The main advantage of a conventional loan is that it often comes with lower interest rates and fees. However, it can be harder to qualify for and requires more stringent credit and financial requirements.

How is a Conventional Home Loan different from other types of mortgages?

Conventional Home Loans are different from other types of mortgages, such as FHA or VA loans, in that they are not backed by the government. This means that the borrower typically needs a higher credit score and a larger down payment to qualify for a Conventional Home Loan.

What are the benefits of SECURING a Conventional Home Loan?

Some benefits of a Conventional Home Loan may include lower interest rates, no mortgage insurance requirement with a 20% or higher down payment, and more flexibility in terms of loan amount and property type.

How do I qualify for a Conventional Home Loan?

To qualify for a Conventional Home Loan, you typically need a credit score of at least 620, a debt-to-income ratio of no more than 45%, and a down payment of at least 3%.

How much can I borrow with a Conventional Home Loan?

The amount you can borrow with a Conventional Home Loan depends on several factors, including your credit score, income, and the value of the property you want to purchase.

Can I use a Conventional Home Loan to buy a second home or investment property?

Yes, you can use a Conventional Home Loan to buy a second home or investment property, but the down payment and credit score requirements may be higher.

Can I refinance my current mortgage with a Conventional Home Loan?

Yes, you can refinance your current mortgage with a Conventional Home Loan, but you will need to meet the lender’s eligibility requirements and may need to pay closing costs.

How long does it take to get approved for a Conventional Home Loan?

The time it takes to get approved for a Conventional Home Loan varies depending on several factors, such as the lender’s processing time, the complexity of the application, and the borrower’s financial situation. In general, the process can take several weeks.

SECURING YOUR Conventional LOAN HAS NEVER BEEN EASIER!

Whether you are a first-time homebuyer or are looking to refinance your existing mortgage, PRMG’s Home Mortgage Experts can provide you with the information and resources you need to make an informed decision about your financial future. We pride ourselves on our commitment to customer service and will work tirelessly to ensure that you receive the best possible experience.

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