What Is a Conventional Mortgage?

Unlike other home loans through the VA or FHA, a conventional mortgage is one that does not have the backing of a government agency. This type of loan often has down payment and income restrictions set out by Fannie Mae and Freddie Mac and loan limits set by the Federal Housing Finance Administration (FHFA).

If you are putting down less than 20%, you will probably have to pay for mortgage insurance, but once you pay down the principal balance to 78% or less of the home’s value, you can cancel the mortgage insurance. That saves you a substantial amount of money over the life of a 15, 20, or 30-year loan. If a conventional mortgage sounds like a good fit for your situation, visit FMS Bank for more information.

How Do I Qualify for a Conventional Mortgage?

While every situation is different, here are some general guidelines for qualifying for a conventional mortgage.

  • A minimum credit score according to the regulations in place at the time (640 for 2019)
  • A debt to income ratio in an acceptable range, generally 36 to 43%
  • Housing debt to income ratio under 35%
  • No significant hits to your credit such as a bankruptcy or foreclosure
  • A sufficient down payment from an allowed source
  • Two years of verifiable income with tax returns

For 2019, conventional loan amounts cannot exceed $424,100 except in some regions of the country with higher housing costs.

What Are the Advantages of a Conventional Mortgage?

Here are a few advantages of taking out a conventional mortgage loan as compared to other types.

  • FHA loans have strict rules related to the properties you can buy, in what condition, and at what price. Conventional mortgages don’t have those regulations.
  • While the higher down payment required for a conventional loan might initially look like a disadvantage, it does help you build equity more quickly.
  • Conventional mortgage loans are available through almost any lender that does home lending. Fewer institutions offer FHA and VA loans.
    Your eligibility for a conventional mortgage loan in Colorado is dependent on factors specific to your situation, so you need a capable, experienced lender like FMS Bank on your side. Visit us today to get started toward the home you’re dreaming of owning.

 

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