Conventional loans are a good choice if you fit into one or more of these categories:
1. High down payment. If you have at least 5% to put down on a house, a conventional loan is most likely the best deal for you. We have some programs that allow for 3% down on conventional loans, but they are primarily designed for first time home buyers and restricted to low to moderate income families. Ask us if you qualify for a 3% down program!
2. Low DTI. Conventional loans require borrowers to have a relatively low debt-to- income (DTI) ratio. Typically borrowers are required to be below a 45% ratio (meaning your debts as a percentage of your income can be as much as 45%).
3. High credit score. Conventional loans reward you for having good credit (generally over 700). They are typically the best deal when it comes to keeping your interest rate and payment low.
A few conventional loan facts:
1. Conventional loans have annual mortgage insurance. Unlike FHA loans which have upfront AND annual (paid monthly) mortgage insurance, conventional loans only require borrowers to pay annual mortgage insurance until they have at least 20% equity in the home. The conventional loan mortgage insurance fee varies and is based on your credit score and the
amount of the loan as a percentage of the purchase or appraised value (loan-to- value). The higher your score and the more you put down, the lower your fee. If you put at least 20% down on the loan in the beginning, you do not have mortgage insurance at all.
2. Conventional loans can have lender paid mortgage insurance. In many instances, if you have a high enough credit score, you’re better off letting the lender pay the mortgage insurance for you. With lender paid mortgage insurance, your interest rate is higher, but your payment is lower for the first 8 or so years until the mortgage insurance would fall off (on a 30-year fixed loan). This is a great way to get your payments lower than they would be otherwise for the first several years of the loan.
Please consult one of our friendly loan officers today to help you determine which loan option is the best for your particular situation! We’ll do our best to be “The Bright Spot in Mortgage Lending!”