Section 4: Conventional First-Time Homebuyers
Purchasing Your First Home
Purchasing a first home is an exciting milestone in any person's life. For some, the process may also seem very intimidating. Buying a home can be challenging for a first timer. After all, there are so many steps, tasks, and requirements, and you may be anxious about making an expensive mistake. But first-time homebuyers actually enjoy some special advantages created to encourage new entrants into the real estate market. Please don't hesitate to give us a call or start your quote online.
How Much Home Can I Afford?
Typically, the first question would-be homebuyers ask themselves is, "What can I afford?" There are many factors that determine what a reasonable mortgage payment should be for an individual, including annual income, existing debt payments, down payment (if any), as well as additional costs like homeowners’ insurance and housing association fees. Orbit Home loans provides a handy VA Loan Payment Calculator to help homebuyers find a monthly payment that's comfortable for them.
Conventional Loan Payment Calculator →
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What Type of Loan Should I Get?
There are many financing options available for homebuyers out there, each with their own unique advantages. For most borrowers, we at Orbit Home Loans highly recommend the working with one of our loan officers to find out what best fits your needs. Of course, if you are still researching then you can continue to explore our many loan options here on our website.
Advantages of a Conventional Loan:
1. Faster Loan Underwriting
Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans. Also, with a conventional loan, sellers do not face an exhaustive FHA inspection, which sometimes then requires time-consuming repairs.
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2. Flexibility
Conventional loans come in all different types and sizes. Do you want a 10-year fixed mortgage? Looking for an adjustable 7-year term. If so, a conventional loan is the only place to find these options. In addition, you have the optional for an escrow account. A conventional loan also usually offers an option to pay taxes and insurance directly, without adding them to your monthly mortgage payment through an escrow account. If you want the flexibility and freedom to pay taxes and insurance separately, a conventional mortgage is your only option. Lastly, if security is important to you then a conventional loan might be a good option for you. Conventional mortgages are usually fixed-rate products, meaning that once an interest rate is locked in, the borrower will keep that same payment for the life of the loan. Borrower’s payments stay the same month to month, whether interest rates climb, or housing prices fall. Even if interest rates fall far enough to make refinancing tempting, borrowers have the flexibility with a conventional mortgage because they have already met the tough requirements to get the mortgage.
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3. Down Payment
Although a conventional loan is not typically seen as the best option for getting a low-down payment but if you are an excellent borrower this could be a benefit for you. 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.
4. Private Mortgage Insurance (PMI)
If you put down less than 20% on a conventional loan, you’ll be required to pay for private mortgage insurance (PMI). PMI protects your lender in case you default on your loan. The cost for PMI varies based on your loan type, your credit score, and the size of your down payment.
PMI is usually paid as part of your monthly mortgage payment, but there are other ways to cover the cost as well. Some buyers pay it as an upfront fee. Others pay it in the form of a slightly higher interest rate. Choosing how to pay for PMI is a matter of running the numbers to figure out which option is cheapest for you. The nice thing about PMI is that it won’t be part of your loan forever – that is, you won’t have to refinance to get rid of it. When you reach 20% equity in the home on your regular mortgage payment schedule, you can ask your lender to remove the PMI from your mortgage payments. If you reach 20% equity as a result of your home increasing in value, you can contact your lender for a new appraisal so they can use the new value to recalculate your PMI requirement. Once you reach 22% equity in the home, your lender will automatically remove PMI from your loan.
5. Competitive Interest Rates
As a conventional loan is seen as one of the strongest loans you can get with some of the strictest requirements, we often see the rate for this loan among the best for qualified borrowers. When we look at credit requirements conventional loans require a credit score of at least 620 but can allow for down payments as low as 3%.
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6. Lifetime Benefit
One of the most common misconceptions about the conventional mortgage program is that it's a one-time benefit. Borrowers who qualify for this loan can use this program over and over again, and the benefit never expires.
7. Prepayment Penalties
With some types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The prepayment penalty is a way for financial institutions to recoup some of that money. Although this is the case it is rare to have a prepayment penalty on your loan when you work with Orbit Home Loans.
8. Foreclosure
Conventional loans aren't backed by the federal government and typically require a minimum 620 credit score and 3% down payment to qualify. The conventional foreclosure waiting period is typically seven years, though it may be shortened to three years in extenuating circumstances.
9. Appraisal
One of the main requirements for a conventional loan is that the home must be appraised. The appraiser's job is to work out the property's actual market value. Usually, they do this by comparing the property with other, similar homes in the neighborhood that have sold recently.
10. Loan Limit
Loan limits are determined by your county and the conforming loan limits. Although conventional loan limits are very competitive it is important to have that discussion with your realtor and loan officer.
12. Funding Fee
There is no funding fee for this loan product.
13. Assumability
Conventional loans cannot be assumed, for example, but FHA and VA loans can. Not just anyone can assume an existing mortgage. You still have to apply with the lender and qualify for the loan. You generally need to make a down payment when assuming a mortgage, and it may be larger than expected.
Getting Preapproved
The first step toward securing your loan is getting pre-approved. This involves a prequalification process, where a loan officer assesses the homebuyer's financial situation and determines what they qualify for and is followed by the homebuyer submitting a completed loan application to the lender for approval. Orbit Home Loans offers two ways to begin this process: You may either call us directly or reach start the application below to get a complementary call.
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Finding a Real Estate Agent
When using a Conventional Loan, it's important to find a real estate agent that not only knows the intricacies of the Conventional Benefit Program, but also understands the specific needs of borrower. Orbit Home Loans has put together a network of friendly real estate agents for just this purpose.
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Helpful Resources
- The Guide to Conventional Homebuying
Browse our VA homebuyer education and resources page. - Conventional Home Loan Mortgage Payment Calculator
This free VA Home Loan calculator gives you a snapshot of what your monthly payments could be with a VA Loan. - Conventional Loan Glossary
Use our glossary to reference any unfamiliar terms or acronyms.
As a first-time homebuyer, you have many options when it comes to purchasing your home - including homes in high-cost areas.