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Homebuying 101: Conventional Mortgage Loans Explained


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When it comes to buying a home, particularly for the first-time homebuyer, it can be a bit overwhelming. Whether you're researching on your own or you meet with a REALTORĀ® or lender, you start hearing vernacular and jargon that might make your head spin. While you may want to focus on finding the perfect home with curb appeal in the right school district, your lender could be asking you questions about fixed rates, APRs, and LTVs, and suddenly you realize the homebuying process is a marathon, not a sprint!

When you decide to buy a home, one of the first considerations in the homebuying "to-do list" is to determine the type of mortgage loan that is right for you. In one of my previous posts, we outlined the details of FHA loans. Today, we want to give you the 4-1-1 on a conventional mortgage loan and what requirements must typically be met in order to qualify for this type of loan.

A conventional loan is a loan that is not insured or guaranteed by any government entity. We sometimes refer to these mortgage loans as "conforming," which means that the loan "conforms" to guidelines established by the Federal National Mortgage Association, or Fannie Mae as they're most commonly referred. In most cases, if the sales price of a single family home is $417,000 or less, it can be eligible for a conventional loan (this can be higher in pricier regions of the country). Anything higher than $417,000 would most likely fall into the jumbo mortgage loan category. Conventional loans are available in fixed-rate and adjustable rate options.

In general, here are the primary highlights of a conventional mortgage loan:

  • Down payments typically start around 5% of the sale price

  • Mortgage insurance is not required if you put 20% down or 80% of loan-to-value (LTV: the ratio of a loan amount to the value of the home)

  • As mentioned above, the maximum loan amount is $417,000

  • Gift funds are allowed to be applied to the down payment 

Is a conventional loan right for you?

While this may vary from lender-to-lender and state-to-state, here are the typical requirements to qualify for a conventional loan:

  • A steady employment history

  • Proof of income and assets

  • A healthy credit score (credit score requirements vary from lender-to-lender)

When it comes to finding the home loan that is the right fit for you, there are many things to consider. It never hurts to consult a mortgage professional who can answer all of your mortgage-related questions, discuss your financial and personal goals, and go over your loan options with you. To prequalify and speak with an SWBC Loan Officer, click here.

Note: Conventional loan limits and requirements differ from state to state. The list of requirements above may not be an exhaustive list.

 

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