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Does a Conventional loan hit the mark for your goals?
Many homebuyers choose a Conventional loan because it often results in less expensive financing. This is mainly true because Conventional loans don’t typically require private mortgage insurance (PMI). These loans require no upfront PMI, and if you make a down payment of at least 20%, you’ll avoid monthly PMI as well. If you make a down payment of less than 20%, you can request that your PMI payments be canceled as soon as you’ve reached a loan-to-value (LTV) ratio of 80%. Another benefit of a Conventional mortgage is it allows you to finance the purchase of a more expensive home.
In exchange for higher loan limits and no or shorter-term PMI, lenders have stricter standards when it comes to the borrower’s financial situation. Lenders generally require a minimum credit score of 620 to qualify for a Conventional loan. In addition, you must have a low debt-to-income ratio and assets in reserve. You may also have to make a larger down payment than with some other types of loans.
Conventional and FHA insured loans are the two most common types of mortgages in the country. Understanding the requirements for each can help you figure out which loan is right for you.
Conventional
Conventional loans conform to Fannie Mae/Freddie Mac guidelines and are a financial agreement between the lender and the borrower. Conventional loans are not government-backed so they may be harder to qualify for than FHA loans, but they typically have lower costs.
- May offer lower interest rates
- No private mortgage insurance (PMI) with 20% down payment. Shorter-term PMI with less than 20% down.
- More expensive home purchases possible
- Available as fixed-rate and adjustable-rate mortgages
- Require minimum credit score of 640
- Often require 20% down payment. Some gift funds allowed.
- May require less documentation and therefore take less time to process
FHA
An FHA loan is administered by the Federal Housing Administration (FHA) and is easier to qualify for than a Conventional loan. With the FHA guaranteeing the loan, lenders are more willing to approve applications, but FHA loans are usually more costly.
- Down payments as low as 3.5%
- Single-family homes, condos, multi-unit properties, and manufactured homes
- Mortgage insurance is required
- Entire down payment and closing costs can sometimes be covered with gift funds
- Extra funding available for renovations and repairs with FHA 203(k) program
- Typically accessible to people of all income levels
Frequently asked questions
Can you refinance with a Conventional loan?
The answer is yes. You can refinance with a Conventional loan and lower your current mortgage payment, change terms, or convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. The two most important things you’ll need to refinance are a good credit score and a successful appraisal of your house. A rate and term refinance could deliver big savings.
What's the best way to get started?
The best way to start any mortgage process is with the help of a lender that's 100% on your side — and that's Embrace Home Loans. Simply call 800-333-3004 or fill out our quick, no-obligation and confidential GET A QUOTE FORM now. Your Mortgage Specialist will start working right away to find your ideal mortgage and will be with you every step of the way. This streamlined, personalized approach means the entire process will be as simple and stress-free as possible. In fact, it can all be wrapped up in as little as 21 days after receiving all your documents. There's just no better way to take the next steps toward a better financial future.
How do you qualify for a loan?
When you first meet or speak with a loan officer, they’ll just want to learn a few basics about you and your financial situation. Once the loan process gets started, you’ll need to provide proof of where you work, your income, any debts you may have, your assets, and how much you plan to put toward a down payment. Our loan officers will clearly explain your mortgage options and answer all your questions so you feel confident in your decision.
What does it mean to be pre-qualified?
A simple first step in the mortgage process is getting pre-qualified. Embrace Home Loans can pre-qualify you over the phone or online. We’ll go over your information and discuss your goals. Shortly thereafter you’ll get your pre-qualified amount — the amount for which you might expect to be approved for a loan.
How do interest rates affect my mortgage?
High interest rates bring higher monthly payments and increase the overall interest you’ll pay over the life of your loan. A low interest rate saves you money in both the short and long term. Sometimes a bigger down payment can help you get a lower interest rate. Keep in mind that the money you pay in interest doesn’t ever go toward paying off the principal, so it’s smart to get the lowest interest rate possible and then pay off your house as quickly as you can.
"Karla always has our best interests in mind and is so easy to work with!" - Carlos, MD
30-Year Fixed-Rate Refinance Mortgage Example:
The payment on a $225,000 30-year fixed-rate cash out refinance loan at 3.250% with a 70% loan-to-value (LTV) is $979.21 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.520%. This assumes a FICO score of at least 690. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.
30-Year Fixed-Rate Purchase Mortgage Example:
The payment on a $225,000 30-year fixed-rate purchase loan at 3.125% with a 70% loan-to-value (LTV) is $963.84 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.390%. This assumes a FICO score of at least 710. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.