Conventional mortgage loans offer a unique opportunity for borrowers to become homeowners with more favorable terms. The program has stricter guidelines compared to other loan programs but can be more affordable depending on your financial situation (income, credit score, debts). Conventional loans have down payment requirements as low as 3%, depending on your income.
Is a Conventional Mortgage right for you?
It’s good to fully understand what is involved with qualifying for a conventional home loan so you can approach the home approval process with confidence.
Conventional Mortgage Loan Requirements
- Income – Your monthly mortgage payment, including taxes and fees, should not exceed 36 % of your total income. If you combine this with your other debts ideally it should not exceed 50% of your gross monthly income .
- Financial History – Your lender will want to look at two years of income, including W2’s and pay stubs. If you’re self-employed, your lender may require profit & loss statements or tax returns. You’ll also need to provide identification (drivers license or social security card).
- Credit Score – Your credit score (FICO) should be 620 or above. If your credit score falls below this, even though you may qualify, you will end up paying more on your mortgage compared to other programs due to a lower credit score.
- Down Payment – Traditionally its been 20% of the cost of the home. The good news due to new conventional programs like HomeReady and Home Possible you can qualify for as little as 3% – 5% down. You can also use gift funds from a family member to help with your down payment and even cover the closing costs.
- Cash Reserves – Having at least two months worth of mortgage payments available after your down payment and closing costs requirements are met is good practice, but not always a requirement.
- Sales Price – Loan limits for conventional loans in most counties is $548,250. If your home price exceeding these limits you will need a Jumbo Loan.
- Bankruptcy or Foreclosure – Although it’s possible to qualify for a conventional loan after a bankruptcy, foreclosure, or short sale there are required waiting periods along with needing to show established credit. (see below).
Chapter 7 Bankruptcy: A four year waiting period, starting from the discharge date is required
Chapter 13 Bankruptcy: A two year waiting period, starting from the discharge date is required
Foreclosure: A seven year waiting period, starting from the discharge date is required
Short Sale or Deed-in-Lieu: A four year waiting period, starting from the discharge date is required
Speak to us about our Non-QM Mortgage options if you prefer not to wait after these events.
Your Loan. Your Way.
Get started on your schedule. Whichever works best for you, we’re here to help.