In the last blog post, we talked about FHA Loans, which are great for individuals who have a limited credit history, lower-than-average credit scores, or are first-time home buyers. If you have a higher credit score and are able to pay quite a bit for a home’s down payment, then you might qualify for a conventional mortgage. In today’s blog, Family Home Loan Texas discusses conventional loans and the factors that make them desirable for those who qualify.
What Is A Conventional Loan
While other types of loans are secured and insured through government entities, this kind is not. Rather, it is available through private lenders, like credit unions, mortgage companies, and banks. It is important to note that they can also be guaranteed through Fannie Mae and Freddie Mac — two government-sponsored entities that set terms and limits for many mortgages. These types of loans typically have a higher interest rate, but they do not require mortgage insurance, which often evens out the price in the long run. Conventional mortgages are typically fixed-rate, which means the interest rate does not change over time. This is also one of the only types of loan that can be used to purchase a second home or investment property.
How To Get One
In order to qualify for a conventional loan, you must complete a mortgage application and then supply a few documents to prove you meet the requirements. For starters, you will need to provide proof of income. Lenders typically want to see that your monthly payments are no more than 28% of your gross income. To establish this, they might want to see two years of federal tax returns, a month’s worth of pay stubs (including year-to-date earnings), and two years of W2 statements. They will also want to see bank and investment account statements in order to determine that you will be able to provide an appropriate down payment (around 20%, though this can be flexible, of the closing cost). Finally, they will also want to see employment verification to ensure you can make your monthly payments.
To receive a traditional loan, you likely need to be someone with an established credit history and a good credit score. They are generally looking for individuals with a score close to 700. The higher your score, the better your interest rate will be. If you have a score of 740 or above, you will receive the best rate. As noted above, lenders want you to be able to pay 20% of the home’s cost as a down payment. That said, you can pay less, but you will probably need to take out mortgage insurance until you reach 20% of the total value in payments. To qualify, you also cannot have undergone bankruptcy in the past seven years, and you need to have a debt-to-income ratio under 43%.
We know this might sound like a lot, but if you do not qualify for this kind of loan, there are other types of mortgages that you likely will be able to.
Contact Us To See If You Qualify For A Conventional Loan
We know finding the right type of home loan may seem daunting, but we are here to help. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about conventional loans.