Buying a Home With a Conventional Loan
Have you decided that you are ready to become a homeowner, and are trying to determine what type of mortgage will best suit your situation? Conventional loans can be an excellent financing option that offer great rates and terms and are completely backed by private lenders. If you are interested in buying a home in San Luis Obispo, California, and want to learn more about your mortgage options, Central Coast Lending with Mike can help. Read on to learn more about conventional loans.
What Are Conventional Loans?
The two main types of loans are conventional and non-conventional loans. Non-conventional loans like FHA, VA, and USDA loans are backed by the federal government. Conventional loans, on the other hand, are insured through private lenders, therefore requiring private mortgage insurance, (PMI). Since conventional loans are not insured by the government in the event that a borrower defaults, they are a higher risk for lenders and usually require a higher down payment. There are two types of conventional loans: conforming and non-conforming. Conforming loans can be used for the amount of up to $647,200 in most areas, and if you need a loan that exceeds that amount, you will need to apply for a non-conforming loan, (sometimes called a jumbo loan). Non-conforming loans generally require a 20% down payment or higher because they are worth a substantial amount of money and pose a high risk for lenders.
Advantages to Obtaining a Conventional Loan
There are numerous benefits to obtaining a conventional loan, including:
- There are a wide variety of terms available that can range from 10 to 30 years
- Conventional loans have lower interest rates and offer both fixed and adjustable rate options
- If you can afford a 20% down payment, you will not be required to pay for private mortgage insurance
- There are many down payment options available, with some being as low as 3.5%
- When applying for a conventional loan, processing can be quicker
Conventional Loan Application Requirements
There are certain requirements that must be met in order to qualify for a conventional loan, including:
- A minimum credit score of 620 – 640
- You must provide tax documentation and proof of income from the past 2 years
- You must have a debt-to-income ratio of 36% – 43%
- A minimum of 3% down will be required, and the lower your credit score is, the higher down payment you may be required to pay
Get Assistance With Conventional Loan Today
Conventional loans can be an excellent way to help you purchase your dream home. If you are interested in learning more about your financing options in San Luis Obispo, California, and have questions about getting a conventional loan, contact Central Coast Lending with Mike today for a consultation.