Conventional Loan

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WHAT IS A CONVENTIONAL LOAN?

A conventional loan is a mortgage that is not guaranteed or insured by any government agency such as FHA, VA, or USDA. Conventional loans are either conforming or non-conforming. Conforming mortgages are required to conform to underwriting guidelines and loan limits set by Fannie Mae or Freddie Mac, whereas Non-conforming mortgages have loan amounts higher than the loan limits set by Fannie Mae / Freddie Mac.

WHO CAN TAKE ADVANTAGE OF CONVENTIONAL LOANS?

Conventional loans are great for many Orange County, San Diego County, and Los Angeles County home buyers because of their faster home loan process low costs, and added flexibility. When applying for a conventional loan, you must meet 3 initial requirements:

  1. Be able to make a down payment.
  2. Meet the minimum FICO credit score (often 620 or above)
  3. Prove a stable income

Another benefit to taking out a conventional loan is the flexibility they provide for different types of local properties. Eligible properties for conventional loans include single-family homes, condominiums, multi-unit properties, and planned unit developments.

So, if you have a decent credit score and available funds to make a down payment on an eligible property, it is likely you qualify for a conventional loan when buying a home.

TIPS FOR TAKING OUT A CONVENTIONAL LOAN

Most importantly: RESEARCH. Before taking out a loan, make sure to speak with a mortgage broker about the perfect loan for you, and look into mortgage loan mistakes. Some of the most common mistakes people make when applying for a conventional loan is not checking their credit beforehand and ignoring the real expenses of homeownership.

Contact Lending Corner today for any further information or questions about conventional loans!

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Answers to Your Questions

There are a lot of factors to consider when determining how much you can afford, but a good rule of thumb is to not let your monthly mortgage exceed 25% of your monthly take-home pay. Following this guideline will help you manage additional homeownership costs such as maintenance and repairs, while still keeping room for other financial goals like retirement and savings. There are also tons of affordability calculators you can find online, like this one!

Pre-Qualification and Pre-Approval both estimate the loan amount that you are likely to qualify for. This is an important first step in the home buying process to ensure you are looking at the right homes that fit your budget.

Pre-Qualification and Pre-Approval are often used interchangeably and can both help you stand out amongst the homebuyer competition. Both require you to supply an overview of your financial history such as your income, assets, debts, and credit score. However, most people look at pre-qualification as step one and pre-approval as step two because pre-approval requires formal documentation and verification.

The amount of time it takes to close a loan will differ from lender to lender, but a top mortgage lender should be able to close your loan within 30-45 days from application. Not having the proper documentation or having errors in your documentation may result in delays so it’s important to make sure you have all of your materials properly prepared.

Mortgage lenders will require you to provide certain documents in order to assess your ability to repay your loan. The Great Recession was due in part to borrowers not being adequately vetted for their ability to repay their loans. For this reason, the pre-approval process now requires significantly more paperwork. You will be asked to provide documentation regarding your employment and income, savings and assets, and outstanding debt.

Some of these documents include:

  • Tax returns
  • Pay stubs/W-2s
  • Bank statements
  • Credit history
  • Gift letters
  • Renting history
  • Work history

Most conventional loans require at least 5% down, but 20% is typically recommended. Mortgage companies often require borrowers to pay private mortgage insurance until they have 20% equity in the home. This additional fee is put in place to protect mortgage companies against borrowers who stop making payments on time.

Although this is standard, there are also many different loan programs that can help you purchase a home with less than 5% down. For example, some Veterans can qualify for VA loans that allow them to purchase a home with 0% down and no PMI. FHA loans can also allow first time homebuyers to purchase a home with as little as 3.5% down.

Your lender will be able to assess your financial situation and determine which programs you qualify for and which ones are best for your financial goals.

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