Conventional

Loans

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• Conventional Loans Vs. FHA Loans
• How Do I Take Out a Conventional Loan?
• How To Qualify for a Conventional Loan?
• What Credit Score Do You Need for a Conventional Loan?
• Do Conventional Loans Have PMI?
• How to Close on a Conventional Loan?
• Debt to Income Ratio

A conventional loan is a residential mortgage loan that’s not backed by a government agency. It’s one of, if not the most popular loan options available, especially for first-time homebuyers. And though there are unique benefits to getting a government-backed loan like an FHA loan, conventional loans are the most common type of loan used.

We offer conventional mortgage loans with a down payment requirement of 3%. Private Mortgage Insurance, or PMI, is necessary when a home is purchased or refinanced with less than 20% down or with less than 20% equity. However, the PMI can be bought out upfront.

What is the difference between a conventional loan and an FHA loan?

• Unlike conventional loans, FHA loans are backed by the government. They require lower credit scores and a lower minimum down payment. An FHA loan is available to applicants with credit scores as low as 580 with a 3.5% down payment.
• People who usually qualify for conventional loans are those with good credit and low levels of debt. People who typically qualify for Federal Housing Administration (FHA) loans are those with little cash for a down payment and a modest credit rating.

Which is better, an FHA or Conventional loan?

Both are good options. If your credit score is good or excellent, then a conventional loan will be better because your mortgage rate and PMI costs will go down, saving you money. But an FHA loan can be great if your credit score is in the high-500s or low-600s. For lower-credit borrowers, FHA is often the cheaper option.

Taking out any loan can be challenging. Below are some need to know facts before taking out a conventional loan.

TL;DR

• Check your credit score.
• Save for a down payment.
• Check your debt-to-income ratio.
• Research Mortgage Lenders
• Get Pre-approved

Check Your Credit Score

You have to know where you stand when it comes to credit. You’ll have a chance of getting approved for a conforming conventional loan if your credit score is 620 or higher. And it gives you an even better chance of qualifying for favorable terms on your new loan if you have a credit score in the mid- to upper-700s.

Save For a Down Payment

Be saving for a down payment. Not every conventional loan will require a big down payment, but the bigger the down payment, the greater your chances are of qualifying for a lower interest rate.

Check Your Debt-to-Income (DTI) Ration

Check your debt-to-income ratio. Lenders will look at your DTI and review your credit score. We typically want to see that your total monthly debts are no more than 50% of your monthly gross income.

Research Mortgage Lenders

Research mortgage lenders. You want someone who will be on your side during this process. So take some time to research different mortgage lenders, seeing what rates they offer, how the application process works, and whether it can be done online. Before applying, try to find at least three to five lenders you like.

Get Pre-Approved

Get pre-approved. A mortgage lender will provide you with a letter, a mortgage pre-approval, that effectively agrees to lend up to a certain amount of money to buy a home, as long as certain conditions are met. The lender or broker will let you know, during this process, what your eligibility is in buying a home and whether you need to make other changes to improve that eligibility.

For a conventional loan, it’s possible to get approved with a credit score as low as 620.

As a rule, most lenders require PMI for conventional mortgages with a down payment of less than 20 percent. However, exceptions exist, so you should research your options if you want to avoid PMI.

TL;DR Process

1. Lock in your interest rate
2. Review your home appraisal
3. Provide final mortgage documents
4. Don’t change jobs
5. Don’t deposit cash, make large deposits, or open new credit.
6. Don’t make the mistake of adding any big charges or applying for “same-as-cash” furniture credit card discounts on any of your cards.
7. Review your initial closing disclosure
8. Confirm you are clear to close
9. Verify the final amount needed at closing
10. Review and sign your paperwork

If You are Refinancing, Add:

Get your refinance benefits or new home keys after your loan records.

Full Explanation

1. Lock in your interest rate

Until you lock in your interest rate, you face the chance of having rates rise before you close. To ensure your rate is locked, check your loan estimate and keep track of the expiration date, which usually occurs 30 to 60 days after you lock. If you go past that date, it might cost you extra.

3. Provide final mortgage documents

To begin preparing your closing documents, lenders typically require:

• Your most recent bank statements
• Verbal verification of your employment
• Your most recent paystubs
• Proof that you haven’t opened any new credit
• Proof of homeowners insurance for your home

5. Don’t open new credit or deposit cash or large deposits

If you receive a large cash housewarming gift from a benevolent friend or relative, don’t deposit it if it’s not already reflected on your bank statements. That can lead to big problems. You may end up finding yourself delaying your closing as you chase down a gift paper trail by trying to gather up bank statements from the person who gave you the money.

• Lenders check your credit before closing, and any large increase in your payments could create qualifying problems. Don’t make the mistake of adding big charges or applying for “same-as-cash” furniture credit card discounts on any of your cards.

7. Confirm you are clear to close

We will usually issue a “clear-to-close” or CTC notice once all the conditions to your loan have been satisfied. That means we can begin preparing your final closing documents for you to sign at the closing table. By the time you reach this step, you should have finalized your loan amount and interest rate. Any changes at this point could cause delays, and you might be required to sign new disclosures.

9. Review and sign your paperwork

Your closing may be scheduled with a notary at a place that you choose or at a title company or an attorney’s office. Some lenders offer eClosings that allow you to electronically sign some or all of your documents with a desktop or laptop computer. You’ll need some form of identification. Take the time needed to review the paperwork and ask any questions you might have about any form that you don’t fully understand.

2. Review your home appraisal

Before closing on your loan, you should receive a copy of a home appraisal if the loan requires it. Make sure it’s as accurate as possible as you review it for discrepancies in the square footage or other features.

4. Don’t change jobs

To avoid any potential delay, don’t change your job before closing. Most mortgage closing departments will verify your employment right before your closing day. Avoid causing a big delay or even receiving a loan denial by not making any changes in your income, employment, or how you’re paid.

6. Review your initial closing disclosure

You will receive a closing disclosure at least three business days before your closing date as per Federal guidelines. Make sure to have your initial loan estimate handy so that you can compare the final figures with what you were originally quoted. As you review the numbers, make sure you’re:

• Getting lender credits applied to fees for a low- or no-cost mortgage offered by your mortgage company
• Getting credit for any fees you’ve already paid (like for an appraisal or pest inspection)
• Receiving your expected closing costs and interest rate
• Receiving the credit for costs the seller agreed to pay
• Checking with your loan officer about any discrepancies or unfamiliar charges
• Requesting any changes to the interest rate or loan amount before the next step

8. Verify the final amount you need at closing

Once all of the closing documents have been completed by the lender’s closer, they will be sent to a title company or, depending on where you live, an attorney to prepare for your signing. You will be contacted by either your loan officer, an escrow officer, or an attorney with the final amount you need to pay. If you are receiving funds from a cash-out refinance, and you want the funds direct deposited or wired into your account, bring your bank information.

10. After your loan records, get your new home keys or refinance benefits

The process is just about complete, but it is not official until the mortgage funds are received, and the loan is recorded in your name on your home. At that point, you are officially a homeowner and can get your keys.

For Refinancing

If you’re refinancing on your PRIMARY HOME, there’s an extra three-day right of rescission waiting period before the loan is officially “closed.” If you decide that the refinance benefit is not worth it and make a choice to cancel, you must do so before midnight on the third business day after you sign. If everything looks good, your loan will be funded after the third day.

Financial institutions assess your creditworthiness and figure out how balanced your budget is by using the debt-to-income ratio.

Before issuing you a loan or extending your credit, lenders want to be comfortable that you’re generating enough income to service all of your debts.

Full Explanation

The only monthly payments that should be included in your DTI calculation are those that are regular, required, and recurring. Remember, you’re not using the account balance or the amount you typically pay, but your minimum payments.

Your gross monthly income is the amount total of pre-tax income that you earn each month.

Depending on who will be included on the loan can determine whether you should include anyone else’s income in this calculation. If there is someone else applying with you, then you should include their debts, as well as their income, into the calculation.

Once the total gross monthly income has been determined for everyone included on the loan, divide the total of the minimum monthly payments by the gross monthly income. Then you can multiply that sum by 100 to get your DTI percentage.