Section 2: Am I Eligible for a Conventional Loan?
Eligibility For a Conventional Loan
In general, any borrower with solid credit and some money for a down payment will satisfy conventional loan qualification requirements. However, because conventional loans aren’t insured or guaranteed by the government, their eligibility requirements for borrowers are usually tougher to meet than the requirements for government-backed mortgages. These include FHA loans, which are insured by the Federal Housing Administration; VA loans, guaranteed in part by the Department of Veterans Affairs; and USDA loans, the program run by the U.S. Department of Agriculture. Also keep in mind that conventional lenders are free to enforce requirements that are stricter than the guidelines set by the FHFA, Fannie and Freddie. If you’re applying for a conventional mortgage after foreclosure or bankruptcy, for example, you might have more trouble qualifying.
*Don’t meet the minimum requirements? You still may be eligible: talk with an Orbit Home Loan specialist today. (CLICK)
Down Payments
It’s possible for first-time home buyers to get a conventional mortgage with a down payment as low as 3%; however, the down payment requirement can vary based on your personal situation and the type of loan or property you’re getting:
- If you’re not a first-time home buyer or making not more than 80% of the median income in your area, the down payment requirement is 5%.
- If the home you’re buying is not a single-family home (i.e., it has more than one unit), you may need to put down 15%.
- If you’re buying a second home, you’ll need to put at least 10% down.
- If you’re getting an adjustable-rate mortgage, the down payment requirement is 5%.
- If you’re getting a jumbo loan, the down payment requirement ranges from 20% – 40%.
If you’re refinancing, you’ll need more than 3% equity. In all cases, you’ll need at least 5% equity. If you’re doing a cash-out refinance, you’ll need to leave at least 20% equity in the home. When refinancing a jumbo loan, you'll need 10.01 – 25% equity, depending on the loan amount.
A mortgage calculator can help you figure out how your down payment amount will affect your future monthly payments.
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Documents Your Lender May Require
- W2s or 1099’s
- Bank Statements
- Pay Stubs
- Asset Statements
- Liability Statements
- Legal ID
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Conventional Lender Requirements
Credit and Income
To qualify for a conventional loan, you’ll typically need a credit score of at least 620. Borrowers with credit scores of 740 or higher can make lower down payments and tend to get the most attractive conventional loan rates, however mortgage lenders generally require a debt-to-income ratio (DTI) that's below 36% for conventional loans, though in some cases a lender may accept a higher DTI. Your DTI represents the total amount of your existing monthly debts (like rent or a car payment) divided by your pre-tax monthly income. Use a debt-to-income calculator to see where you stand. The minimum down payment required for a conventional mortgage is 3%, but borrowers with lower credit scores or higher debt-to-income ratios may be required to put down more. If you put down less than 20% on a conventional mortgage, you’ll probably be required to pay for private mortgage insurance, or PMI.
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How to Apply for a Conventional Loan
Get started today with one of the best and most secure ways possible. Here are Orbit Home Loans we have a trusted team ready to help you find your dream home. Talk with you trusted Orbit Home Loans broker that knows conventional loans and how to get the most from this hard-earned benefit. The process typically starts with getting pre-approved, which can often be done in minutes using your phone, laptop or tablet.
Loan pre-approval is a key first step before making an offer on your dream home. Having that pre-approval letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing.
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