LOAN PROGRAMS / Conventional Loans

  • Credit score requirement:¬†It’s possible to get approved for a conforming conventional loan with a credit score as low as 620, although some lenders may look for a score of 660 or better.
  • Down payment requirement:¬†You can find conventional mortgage loans with a down payment requirement as low as 3%, and some lenders have special programs that offer up to 100% financing. However, if you don’t put down 20% or more, the lender typically requires you to pay¬†private mortgage insurance.
  • Loan amounts:¬†Conforming conventional loans go as high as $647,200 for single-family homes in 2022 ($970,800 if you live in a designated high-cost area). If you want a bigger loan, you’ll need a¬†jumbo loan.
  • Loan terms:¬†Conventional loans are typically repaid over a 30-year period, but it’s possible to qualify for a 15- or 20-year conventional mortgage loan.
  • Conforming conventional loans:¬†Conforming conventional loans are loans that adhere to the standards Fannie Mae and Freddie Mac set, including the maximum loan amounts discussed above.
  • Jumbo loans:¬†Jumbo loans¬†allow you to borrow more than the maximum lending limit for conforming loans. However, they typically require a higher credit score, lower¬†debt-to-income ratio (DTI), and larger down payment.
  • Portfolio loans:¬†A portfolio loan is a conventional loan that a lender chooses to keep in its portfolio rather than selling it on the secondary market. This option allows the lender to be more flexible than the Fannie Mae and Freddie Mac standards, especially with credit scores and DTIs.
  • Subprime loans:¬†Conforming loans require a DTI below 50% and a credit score of 620 or higher. But if your credit isn’t quite there, you may qualify for a¬†subprime mortgage loan.
  • Amortized conventional loans:¬†These loans are fully amortized, giving homebuyers a set monthly payment from the beginning to the end of the loan repayment period without a balloon payment. Amortized conventional loans can have fixed or adjustable mortgage rates.
  • Adjustable-rate loans:¬†A fixed-rate mortgage loan has the same interest rate‚ÄĒand, therefore, the same monthly payment‚ÄĒthroughout the life of the loan. With an adjustable-rate mortgage, however, you’ll get a fixed interest rate for a set period, typically between three and ten years. After that, your interest rate can adjust each year based on the current market rates.
  1. Check your credit score.¬†Before you do anything else, knowing where your credit stands are essential. You can do this by¬†checking your credit score for free with Experian. If your credit score is 620 or higher, you’ll have a chance to get approved for a conforming conventional loan. And if it’s in the mid-to upper-700s, you’ll have a better chance of qualifying for favorable terms on your new loan.
  2. Save for a down payment.¬†While many conventional loans don’t require a big down payment, the more money you put down, the better your chances of qualifying for a lower interest rate.
  3. Check your debt-to-income ratio. In addition to reviewing your credit score, lenders will look at your DTI. Lenders typically want to see that your monthly debts are no more than 36% of your monthly gross income. In some cases, lenders may stretch their required DTI to 43% or higher, but the maximum Fannie Mae and Freddie Mac will allow for conforming loans is 50%.
  4. Research mortgage lenders.¬†Take some time to look at different mortgage lenders, including what rates they’re offering, how the application process works, and whether you can do it online. Try to find at least three to five lenders you like before applying.
  5. Get pre-approved. A mortgage preapproval is a letter from a mortgage lender effectively agreeing to lend you up to a certain amount of money to buy a home as long as you meet certain conditions. During this process, the lender or broker will let you know whether you need to make other changes to improve your eligibility to buy a home.

 

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