You’ve decided it’s time to purchase a home. Before you move forward, it is important to understand your loan options and buying power.
Enter the conventional loan.
Conventional loans differ from others, including Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) loans, because they are not formally insured by any government entity such as the FHA, VA or the U.S. Department of Agriculture (USDA).
Instead, conventional loans, also known as conforming loans, follow guidelines set by Fannie Mae and Freddie Mac – organizations that stabilize the nation’s residential mortgage markets and expand opportunities for affordable home ownership.
A conventional loan is a great option for first-time home buyers who have decent credit and the funds available to make a down payment, which can range anywhere from a minimal 3% to 20% of the total price of the home. For example, if your house is $200,000, your down payment could be anywhere from $6,000 to $40,000.
Conventional Mortgage Advantages
There are many advantages to a conventional loan, including the option to choose the life of your loan. While many mortgages are on a 30 year term, conventional loans come in 10, 15, 20, 25 and 30 year terms. The shorter the loan term, the higher the monthly payment will be, but the interest rate will be lower. You can choose any of the available options that best meet your needs.
Another advantage is that conventional loans require monthly mortgage insurance only when the down payment is less than 20%. FHA loans require an upfront mortgage insurance fee, on top of the annual mortgage insurance premium that is applied to all loans – regardless of the down payment. This upfront funding fee usually ranges from 1-3% of the loan amount and is implemented to cover the process of administering the loan. In addition, USDA and VA have a Guarantee Fee and FHA and USDA have monthly mortgage insurance. VA loans do not require any monthly mortgage insurance.
Qualifying for a Conventional Loan
It is not difficult for the average home buyer to meet conventional loan qualifications. However, it is important to remember that conventional loans do put lenders at a higher risk. Because they are not backed by any government entity, conventional loans have no guarantee of repayment to the lender, therefore higher standards exist.
The minimum credit score for the majority of conventional loans is 620. That’s only because lenders want reassurance that borrowers pay their debts on time and are financially responsible.
When applying for a conventional loan, borrowers will also be required to provide proof of earnings for a two-year period which can include some, if not all, of the following:
- Copy of your last 2 years Federal Tax Returns and W-2’s
- Copy of your last 2 months bank statements including all pages
- Copy of your most current year-to-date paystub for the last 30 days
- Copy of your social security card and driver’s license
Since 2012, De Young Mortgage has been helping homeowners finance the American Dream of home ownership. De Young Mortgage takes pride in being a reliable and reputable mortgage company, offering a full-range of quality financing options including Conventional, FHA, USDA, VA and Jumbo loans and down payment assistance programs.
In addition, De Young Mortgage can offer expertise in lending for a resale purchase of an existing home, refinancing of an existing loan, and financing of new home construction or investment property. Our goal is to make the financing process as simple, convenient and pleasant as possible for all of our clients. To achieve this, we have an experienced staff that is ready to help you.
Let the professionals at De Young Mortgage assist you in finding the loan option that will fit your needs.
To learn more about De Young Mortgage, contact us at 559.666.2277. To complete a De Young Mortgage application, visit here.
Author: Brandon De Young, President of De Young Mortgage
This is not an offer for extension of credit or the commitment to lend. All loans must satisfy company underwriting guidelines. Information is subject to change at any time and without notice. Casey McDaniel, CA Bureau of Real Estate Real Estate Broker License # 01982326 NMLS Lic. # 1151413. Brandon De Young, CA Bureau of Real Estate Real Estate Broker License # 01922771 NMLS Lic. # 1029435. Jerry De Young, CA Bureau of Real Estate Real Estate Broker License # 00524649 NMLS Lic. # 293347. De Young Mortgage, Inc. NMLS #1026010. De Young Mortgage, Inc. CA Bureau of Real Estate Real Estate Broker License #01926671.