A Guide to Conventional Mortgages and the Home Buying Process

Conventional mortgages can be a bit overwhelming, especially if you're new to the home buying process. A conventional mortgage is a type of loan that's not insured or guaranteed by the government.

To qualify for a conventional mortgage, you typically need to make a down payment of at least 5% of the home's purchase price. This is a great opportunity to save up and build equity in your home from the start.

The home buying process can be lengthy, taking anywhere from 30 to 60 days to complete. This timeline may vary depending on the complexity of the transaction and the speed of your lender.

Ultimately, it's essential to work with a reputable lender and a knowledgeable real estate agent to navigate the home buying process with ease.

Consider reading: Mortgage Broker Process

Conventional mortgages can be broken down into two categories: conforming and non-conforming loans. The main difference between these two types is the amount of money you need to borrow and the qualifying requirements.

Conventional loans can be further divided into several types, each designed to cater to specific home buying situations. Conventional Loans are standard loans for borrowers with good credit who can make a substantial down payment.

Jumbo Loans are ideal for purchasing high-priced properties that surpass conforming loan limits, requiring a strong credit score and significant savings. Adjustable-Rate Mortgages have an interest rate that fluctuates over the years, starting comparatively low but subject to increases or decreases later on.

Fixed-Rate Mortgages are a popular type of conventional loan where the interest rate stays the same throughout the life of the loan. Conforming loans meet the conforming loan limit set by the Federal Housing Finance Agency (FHFA) and fit the requirements to be purchased by Fannie Mae or Freddie Mac.

To get a conforming loan, you'll need to meet certain qualifying criteria set out by Fannie and Freddie, including a credit score of at least 620 and a debt-to-income ratio of 50% or less. Conventional loans tend to cost less than FHA and some other loan types, but can also be harder to qualify for.

You might like: Mortgage Interest Rate

Conventional loans offer a lot of flexibility, with a wider range of terms, loan limits, and options compared to government-backed ones.

You can choose from a variety of loan terms, ranging from 10 to 30 years, to fit your financial situation best. This flexibility can help you plan your payments and budget accordingly.

One of the biggest advantages of conventional mortgages is the potential for lower interest rates for borrowers with high credit scores. This can significantly reduce the life of the loan cost compared to other types of home loans.

You can save money on upfront mortgage insurance premiums if you put down at least 20% on your new home. This can be a significant cost savings over time.

Conventional mortgages also offer no property type restrictions, so whether you want to buy a primary residence, a second home, or an investment property, this type of loan may be the perfect fit for your needs.

Recommended read: How Do Commercial Mortgages Work

To qualify for a conventional mortgage, you'll need to meet certain requirements. The minimum credit score for a conventional loan is 620, but a score of 720 or higher is recommended for a better interest rate.

You'll also need to demonstrate financial stability by keeping your debt-to-income ratio (DTI) low. A DTI ratio of 36% or less is generally recommended, but it can be as high as 45% for some loans.

To get approved for a conventional mortgage, you'll need to provide documentation such as pay stubs, tax returns, and bank statements. You'll also need to provide proof of income, employment verification, and a valid form of identification.

Consider reading: Mortgage Servicing Ratio Formula

Making a 20% down payment can save you significantly over the course of your loan term.

If you can afford to put down 20% of the purchase price, you'll avoid paying mortgage insurance with a conventional mortgage.

FHA loans, on the other hand, always require mortgage insurance.

This upfront cost can add thousands to your loan amount, and you'll also pay a monthly premium.

Here's an interesting read: Types of Mortgage Insurance

To qualify for a conventional mortgage, you'll need to meet certain income and job history requirements. Lenders want to ensure you have enough income to make your monthly mortgage payments.

Your credit score plays a crucial role in qualifying for a conventional mortgage, with a minimum score of 620 required for a conforming conventional loan. However, a higher score of 700 or more can qualify you for better interest rates and terms.

You'll need to provide proof of income, employment verification, and bank statements to verify your assets. Lenders will also review your credit history and debt-to-income ratio to determine if you can afford the mortgage payments.

A debt-to-income ratio of 49.99% is acceptable for conforming conventional mortgages, but a lower ratio is recommended for better chances of approval. Your debt-to-income ratio is calculated by dividing your monthly debt payments by your gross monthly income.

To qualify for a conventional mortgage, you'll also need to meet down payment requirements, with a minimum down payment of 3% required for conforming loans. However, paying a larger down payment, such as 20%, can save you significantly on mortgage insurance costs.

Lenders will consider your creditworthiness, income stability, debt-to-income ratio, and assets when determining if they are willing to lend you the money for your home purchase. A higher credit score in the 700s can qualify you for more favorable rates and terms.

Suggestion: Using Rental Income to Qualify for Conventional Mortgage

You're considering a conventional mortgage, and you want to know what to expect. The process typically starts with pre-qualification, which is a good idea to get an idea of how much you can borrow.

To get a conventional mortgage, you'll need to go through a step-by-step process that involves lender approval, closing the deal, and more. This can be overwhelming, but don't worry, it's all part of the journey to becoming a homeowner.

Conforming, conventional mortgages are the most popular mortgage product out there, so you're not alone in this journey. You can learn how to navigate the conventional mortgage process with an easy-to-follow step-by-step guide.

The lender's role is crucial in this process, and it's essential to understand some basic home loan terms before applying for a mortgage. This will help you make informed decisions and avoid any surprises down the line.

Once you have found the perfect home and secured loan approval, it's time to move forward with closing. This involves signing all the necessary paperwork, including the mortgage agreement and any other required documents. Remember to review everything carefully before signing, as this is your final opportunity to make sure that you understand and agree with all terms and conditions.

The average time to close a mortgage is around 30 days, but with proper preparation and attention to detail, you can expect to close your loan even faster. Bennett Capital Partners, for example, can close most loans within 15 business days, giving you the keys to your new home sooner rather than later.