Conventional Loan

• Enjoy down payments as low as 3%.
• Benefit from fewer restrictions than government-backed loans, with no upfront mortgage insurance required.
• Cancel Private Mortgage Insurance (PMI) once you achieve 20% equity, provided the property is your principal residence or second home and you have maintained an acceptable payment record.
• Obtain potentially lower interest rates with higher credit scores.
• Take advantage of less stringent appraisal and property requirements compared to FHA, VA, or USDA loans.
• Experience faster loan processing and choose from a variety of term lengths ranging from 10 to 30 years.

To apply for a Conventional mortgage, you'll need to fill out a loan application and pay any necessary fees. A credit check will be conducted to assess your credit score and history. Here’s what you’ll generally need to provide:

• Proof of Income: This includes pay stubs, two years of federal tax returns, and W-2 statements from the last two years.
• Assets: You'll need to show bank statements and other investments to prove you can cover the down payment and closing costs.
• Employment Verification: Proof of stable employment helps reassure lenders.
• Other Documents: A driver’s license or state ID and your Social Security number are also required.
• Credit Score: A minimum score of 620 is typically needed.
• Down Payment: Expect to put down anywhere from 3% to 20%, depending on your credit and income.
• Debt-to-Income Ratio: Ideally, this should be no more than 43%, though some exceptions may apply.

Conforming Loans: These loans adhere to the standards set by Fannie Mae and Freddie Mac, covering aspects like maximum loan amounts and borrower qualifications.

Jumbo Loans: For properties that surpass the price limits of conforming loans, Jumbo loans are the go-to. They typically come with higher interest rates and stricter qualification criteria.

Portfolio Loans: These loans are kept by the lender rather than sold to Fannie Mae or Freddie Mac, giving lenders the flexibility to set their own terms.

Adjustable-rate Mortgages (ARMs): Starting with a lower interest rate, ARMs adjust after an initial period based on market rates. This is similar to how some credit cards offer introductory 0% APR.

Amortized Loans: With fixed monthly payments throughout the term, these loans provide consistent payment amounts.

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You might think you need a 20% down payment for a Conventional loan, but many lenders accept as little as 3%. However, if you can put down 20%, you won't need Private Mortgage Insurance (PMI).

PMI is insurance you pay to protect the lender if you default on your loan, required when your down payment is below 20%. Once you've paid off 80% of your home's original value, you can ask to cancel your PMI. When your balance drops to 78%, your lender must automatically remove the PMI, provided you're up to date on payments and meet certain conditions.

VA Loans: Tailored for active-duty military and veterans, VA loans are supported by the Department of Veteran Affairs and offer favorable terms like lower interest rates, thanks to government backing. These loans are exclusive to service members and certain military spouses, meeting specific criteria.

USDA Loans: Ideal for those looking to purchase in rural areas, USDA loans require no down payment and offer lower interest rates compared to Conventional loans. Governed by the Department of Agriculture, these loans come with particular eligibility requirements based on location and income, but they are flexible on credit scores and offer 100% financing for eligible buyers.

FHA Loans: A popular choice for many, especially those with lower credit scores, FHA loans are overseen by the Federal Housing Administration. They are easier to qualify for than Conventional loans and allow higher debt-to-income ratios, though they typically require a larger down payment. Unlike Conventional loans, FHA loans may require mortgage insurance regardless of the down payment size.

Why Choose a Conventional Loan Over a Government Loan?

Conventional loans are the most common type of home loans and offer flexibility that government loans don't. They generally have fewer restrictions, allowing for more flexible terms. For example, while a VA loan might be ideal for military members due to specific benefits, a Conventional loan could be a better fit for others based on their personal financial situation. Our loan officers at New American Funding are ready to help you decide which loan best fits your needs.

Who Can Get a Conventional Loan?

To qualify for a Conventional loan, you need:

• Proof of income and assets.
• Funds for a down payment.
• A minimum FICO score of 620.

Improving your credit score, maintaining a debt-to-income ratio under 43%, and saving for a down payment of 20% or more can enhance your eligibility.

What’s the Minimum Down Payment for a Conventional Loan?

You can start with as little as 3% down for a Conventional mortgage, though a 20% down payment eliminates the need for Private Mortgage Insurance (PMI). The exact amount can vary depending on your credit score and other financial factors.

When Can I Refinance from an FHA to a Conventional Loan?

You can refinance a Conventional loan once you have 20% equity in your home. Refinancing can reduce your monthly payments and eliminate the need for mortgage insurance. Consider future home prices, mortgage rates, and the costs involved in refinancing to decide if it’s the right move for you. Use our mortgage refinance calculator or consult our blog for more insights.

Is Down Payment Assistance Available for Conventional Loans?

Yes, there are down payment assistance programs for Conventional loans, primarily aimed at first-time homebuyers (those who haven't owned a home in the last three years). Eligibility varies as most programs are local and have specific requirements. Research your local and state options and discuss with your lender what assistance might be available for you.