If you are looking to purchase a home, unless you're paying with cash, your most likely going to need a mortgage. There are a few different mortgage programs available. I will say, they all have different requirements. One common program that you will hear left and right is a conventional mortgage.
I recently got together with one of my licensed loan officer partners so that he could give a better understanding of conventional home loans. Here is what he had to say:
Chastin: What is a conventional loan?
Dan: A Conventional Loan is your “plain vanilla” mortgage. It is a conforming loan, meaning it adheres to the guidelines set by Fannie Mae and Freddie Mac. A conventional loan is not insured by the federal government but does require private mortgage insurance until a borrower has 20% equity through the loan. Conventional loans are typically harder to qualify for, but comes with less hoops to jump through in order to get approved and close on a home.
Chastin: What are the requirements for a conventional loan?
Dan: Conventional loan requires a minimum of 620 credit scores. Conventional loans require a 5% down payment, unless the borrower is trying to avoid paying for mortgage insurance which would require a 20% down payment. Debt to income ratios typically cannot exceed 45%.
Chastin: What are interest rates like for a conventional loan?
Dan: Interest rates for a conventional mortgage are heavily credit score driven, among other adjusters. For prime conventional rates one should expect to have good credit scores. FHA loans will have lower interest rates and not be so dependent on the credit score/down payment.
Chastin: What do you think of conventional loans?
Dan: If you are in very strong financial position, a conventional loan will be the best product for you.
Before you decide to seek out a conventional loan. Make sure you know your options. If you have not had a chance to check out my recent article on FHA Mortgage Loans, it’s definitely worth reading.