What is A Conventional Loan Mortgage?
A conventional loan, also known as a conventional mortgage, is a home buyer loan that is not provided or secured by the Federal Housing Administration, the USDA Rural Housing Service, the United States Department of Veteran Affairs (VA), etc.
The loan is instead provided by private lenders such as banks, mortgage companies, or credit unions. It is also made available through two government-sponsored agencies namely the Federal Home Loan Mortgage Corporation, popularly referred to as Freddie Mac, and the Federal National Mortgage Association or Fannie Mae as most people refer to them.
Conventional loans are not secured by government entities but are quite popular today. In fact, they represent close to two-thirds of all loans issued to homeowners in the US. The market for these loans is huge and liquid.
The loans are usually packaged in mortgage-backed securities that trade on the secondary market.
How Do Conventional Loans Work?
After the 2007-2008 subprime mortgage meltdown, lenders have introduced more stringent qualifications for most loans but the basic requirements are still the same. To apply for a conventional loan, you’ll have to fill out an official mortgage application form and provide the lender with all the required documents.
They will also look into your credit history to evaluate your current credit score as well.
Who is the Conventional Loan For?
Conventional loans are not for every individual, but you are likely to qualify if you meet the following conditions:
- Have a stellar credit score and good credit reports. The ideal candidate should have a credit score of at minimum 680 and preferably over 700. Remember the higher your credit score, the less interest you will be charged. People with credit scores of 740 and above enjoy the best loan terms.
- You should also have a solid financial standing to qualify for a conventional mortgage
- It is also important to have an acceptable debt-to-income (DTI) ratio, which basically refers to your total monthly financial obligations compared to what you earn each month. DTI for approval for conventional loans should be around 36% but no more than 43% in most cases.
- You should also be prepared to make a down payment of at least 3-5% of the purchase price of the home. If you put down less than 20% in most cases the lender will require a private mortgage insurance policy or PMI. You will pay the PMI monthly premiums until you achieve at least 20% of the house equity.
Conventional mortgages in Montgomery County are very common. In most cases a great option for homebuyers who want to buy a new home, an investment property, or a second home. The maximum conventional mortgage loan is set by FHFA. This amount can change based on FHFA’s analysis of median home prices in the country. Currently the maximum conventional is $647,200.
You are not likely to qualify for a conventional loan if you have suffered a foreclosure or bankruptcy within the last 7 years if you have a credit score below 640 if your DTI is above 49%. There are other products that may be a better option if this is the case.
Contact us today to find out if you qualify for a conventional mortgage in Montgomery County or beyond, and if you have any questions about conventional mortgages versus any other product. We are a trusted mortgage broker with over 20+ years of experience.
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