Conventional Home Loans
Conventional home loans are a type of financing that falls within the guidelines provided by Fannie Mae or Freddie Mac. Fannie/Freddie have their own specific automated approval systems and guidelines that detail which loans are considered “Conventional” and eligible for purchase by Fannie/Freddie.
Conventional loans have a wide variety of options and purposes whether purchasing, refinancing, or taking cash-out. Conventional home loans are also available for second homes and investment properties. The terms range from 30, 25, 20, 15, 10 yr. fixed to 3, 5, 7 and 10 yr. adjustable rate mortgages.
Down payment options are flexible for conventional loans as well. Depending on your credit score, loans are available up to 97% loan to value with qualifying mortgage insurance. Want to avoid mortgage insurance? No problem. By putting at least 20% down you can avoid mortgage insurance all together on a conventional loans. Not putting 20% down? Still not a problem. We have options available for you to finance up to 95% (80/15) by including a second loan program.
While there’s not a clear “best loan option” that suits everyone, the variety of options and flexibility allow a Conventional home loan to be structured exactly how it fits into your unique situation.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance is a way that a lender insures itself against loans that are greater than 80% loan to value. Your lender will obtain a “certificate” from the MI company that insures the loan for closing. The amount of mortgage insurance will vary based on the down payment, credit scores, etc. and can be applied as a monthly premium, single upfront premium, or lender paid. While typically seen as a monthly payment, the upfront premium and lender paid options can save you money depending on your situation. If you plan on staying in your home for 5 years or greater, it is definitely worth considering upfront or lender paid mortgage insurance options. Request a home purchase review if you’d like to find out which option is best for you.
Combo loan, 80-10-10 mortgage, or 80-15-5 mortgage
A combo loan is a unique way to structure your home loan by breaking up the total loan balance into two separate loans, a first loan and a second loan. This type of financing allows for a first time home buyer or experienced buyer to be able to purchase a home with as little as 5% down. The combo loan has many advantages over loans that have mortgage insurance may be the best home loan for you if you are interested in waiving your escrow account, maximizing tax deductions, or avoiding jumbo home loans and/or mortgage insurance. Dive in deeper to find out, Is an 80-10-10 mortgage or 80-15-5 the best home loan for me?
Conventional Home Loan Limits
In most areas the conventional home loan limit is $424,100. Any loan amounts greater than $424,100 would be considered a non-conforming or Jumbo loan, which carries its own unique qualifying guidelines and interest rates. Fannie Mae and Freddie Mac have indicated specific higher priced areas that can allow for higher conventional home loan limits.
Expecting to borrow more than $424,100? There are ways that your financing can be structured so you can borrow more than $424,100 and still receive a low conventional interest rate. In this case, we would offer a first and second loan. The second loans can be as high as $250k, allowing home buyers to borrow as much as $674,100 by using a conventional home loan.
Conventional Home Loans Credit Score Guidelines
Credit scores can make a big difference when it comes to conventional home loans. Whether looking at the interest rate and/or the down payment options, find out how your home loan may be affected.
- 740+ – Access to the full product menu. Home buyers with a middle credit score of 740 or higher will have access to the lowest interest rates and all products. Loan to values up to 97% with the lowest cost of mortgage insurance.
- 720-739 – minor pricing adjustments to interest rate and/or discount points depending on down payment. 3% down options available
- 680-719 – adjustments to interest rate. 97% loan to value w/ mortgage insurance. Increased cost of mortgage insurance
- 660-679 – adjustments to interest rate. 97% loan to value available w/ mortgage insurance. Increased cost of mortgage insurance. FHA loans would still be available at the lowest interest rates available.
- 640-660 – Not ideal for conventional but still a possibility with compensating factors. Interest rates are likely to be quite a bit higher than if you had 660 score. Consider FHA financing?
- 620-639 – A higher down payment and/or other compensating factors are likely required to obtain a conventional loan with these credit scores. An increase to interest rate as much as .5%-.75%. Limited lender options. FHA still available with 3.5% down.
We offer a complimentary credit analysis to prospective clients. Whether purchasing now or 12 months from now, it’s never too early to find out what’s reporting on your credit and how it may impact your home purchase and home loan.