What is a Conventional Loan?
By definition, a conventional loan is any mortgage that is not guaranteed or insured by the federal government. A conventional loan is generally referring to a mortgage loan that follows the guidelines of government sponsored enterprises (GSE’s) like Fannie Mae or Freddie Mac. Conventional loans may be either “conforming” and “non-conforming”. Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Nonconforming loans don’t meet Fannie Mae or Freddie Mac guidelines, but they are also considered conventional. Whether you’re buying a home or want or refinance your mortgage, a Conventional Loan might be right for you. If you’re unsure about your credit rating, or have concerns about a down payment, Conventional Mortgages can give you piece of mind with super low closing costs and flexible payment options.
What are the Conventional Loan Requirements?
To decide if you qualify for a Conventional Mortgage Loan, we will look at:
- Your income and your monthly expenses. Standard debt-to- income ratios are 28/36 for Conventional Loans. These ratios may be exceeded with compensation factors.
- Your credit history (this is important, but Conventional’s credit standards are flexible). A FICO score of 620 or above is very helpful in obtaining an approval.
- Your overall pattern rather than to individual problems you may have had.
To be eligible for a Conventional mortgage, your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income (28% ratio). Your credit background will be fairly considered. At least a 620 FICO credit score is generally required to obtain a Conventional approval. You must also have enough income to pay your housing costs plus all additional monthly debt (36% ratio). These percentages may be exceeded with compensating factors.
What are the Conventional Down Payment Requirements?
Conventional Loans require the home buyer to invest at least 3% – 20% of the sales price in cash for the down payment and closing costs. If the sales price is $100,000 for example, the home buyer must invest at least $3,000 – $20,000.
What will be my interest rate?
The interest rate for your home loan will be determined by the type of loan program that you qualify for and your credit score. You might be asking yourself what is the formula to calculate interest rates? Interest rates are driven off of Mortgage Backed Securities (MBS) which are commonly referred to “mortgage bonds”. These value of these bonds determine whether the interest rates rise or fall. Your final rate will determine your payment using the standard calculate mortgage payment formula. Please
contact one of our loan officers to see what is todays lending mortgage rate.
What types of property are eligible?
While Conventional Mortgage Guidelines allow you to purchase warrantable condos, planned unit developments, modular homes, manufactured homes, and 1-4 family residences. Conventional Loans can be used to finance primary residences, second homes and investment property.
Can I get a Conventional Mortgage Loan after bankruptcy?
Criteria for Conventional loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for four years or more, you are eligible to apply for a Conventional mortgage. If you have had a Chapter 13 bankruptcy, it must be documented that your credit reputation has been re-established for at least two years to be eligible for a Conventional Loan Application.
what is the maximum amount that i can borrow?
The maximum amount for a Conventional Mortgage Loans are determined by:
Maximum loan amount: The maximum loan amount allowed for an Conventional Conforming Loan varies from county to county. The highest maximum Conventional Conforming right now is $729,750. The lowest maximum Conventional Mortgage amount available in any county is $417,000.
Maximum financing: Depending on the state where the property is located, the maximum Conventional Mortgage amount will be 80% – 95% of the appraised value of the home or its selling price, whichever is lower.
What are VA Mortgages?
VA stands for Veterans Administration. A Veterans Administration loan provides low-cost insured home mortgage loans that suit a variety of options. Whether you’re buying a home or want or refinance your mortgage, an VA mortgage loan might be right for you if you are a veteran of the Armed Services.
What are the advantages of VA Mortgage versus Conventional Loans?
VA mortgage loans offer many benefits and protections that you won’t find in other loans including:
VA Mortgages are Credit Flexible.
The veteran does have to qualify income and credit wise, however, VA loan requirements are not totally credit score driven. It is helpful to have at least a 620 FICO score to obtain an approval. VA mortgage guidelines are written in a way that provides the veteran the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they’re generally going to be credit- eligible for an VA mortgage.
VA Mortgages have Great Interest Rates.
A distinct advantage of a VA mortgage, as compared to a conforming loan, is great interest rates, no down payment and no mortgage insurance (MI). Depending on the program, the daily VA mortgage rates are usually better than a conforming 30-Year Fixed loan.
VA MORTGAGE REQUIRES NO DOWn PAYMENT.
VA Mortgages have no down payment requirement. Other loan programs don’t allow this.
VA Mortgages Have No Mortgage Insurance.
There is no private mortgage insurance, but VA does charge an upfront VA funding fee, which may be financed. The exception to this is that if a veteran is in receipt of VA service connect disability payments each month, he or she does not have to pay a VA funding fee.
What factors determine if I am eligible for a VA Loan?
VA uses two methods for income qualification purposes. The primary method of evaluating a veteran’s income is the residual income method. Under this method, the underwriter determines that a veteran has sufficient income to cover day-to- day living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments. VA also uses a debt-to- income ratio method like many programs. However, VA uses only one ratio (41%) which is the ratio of total debt (both housing and other debt) to income. Your credit background will be fairly considered. At least a 620 FICO credit score is very helpful to obtain an VA approval.
What is the maximum amount that I can borrow?
The maximum amount for a VA home loan is determined by:
Maximum Loan Amount: The maximum loan amount allowed for a VA Mortgage varies from county to county. The highest maximum VA Mortgage right now is $1,094,625. The lowest maximum VA Mortgage amount available in any county is $417,000.
Maximum financing: The maximum VA Mortgage amount will be 100% of either the appraised value of the home or its selling price, whichever is lower.
How much money will I need for the down payment and VA mortgage closing costs?
VA Mortgages require no down payment up to $417,000, which is the conforming loan limit for 2008 is ($625,500 for Hawaii, Alaska, Guam and U.S. Virgin Islands). This means that qualified veterans could get a no down payment purchase loan for those amounts.
What property types are allowed for VA Mortgages?
While VA Mortgage Guidelines do require that the property be Owner Occupied (OO), they do allow you to purchase condos, planned unit developments, manufactured homes, and 1-4 family residences, in which the borrower intends to occupy one part of the multi-unit residence.
Can I get a VA Mortgage after bankruptcy?
Criteria for VA loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for two years or more, you are eligible to apply for a VA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make a VA loan application.
What advantages do FHA Mortgages offer when compared to Conventional Loans?
FHA mortgage loans contain many additional benefits and protections that can’t be obtained through other home loan programs.
FHA Mortgages have more flexible credit requirements
FHA mortgage loan requirements aren’t completely driven by a borrower’s credit score, though they will usually need at least a 620 middle FICO score to get approved through most lenders. While FHA mortgage guidelines are more flexible than other home loan programs, there are still basic requirements that must be met.
FHA Mortgages have low interest rates and low mortgage insurance
FHA Mortgage interest rates are usually better than other comparable loan programs and they carry low mortgage insurance costs to the borrower.
FHA Mortgages require smaller down payments
FHA Mortgages have a low 3.5% down payment requirement and it is possible for the money to be gifted from a family member, employer or charitable organization.
What factors determine FHA Mortgage eligibility?
To be eligible FHA Mortgage approval, your monthly housing costs (mortgage principal and interest, property taxes, and insurance) must be less than a specified percentage of your gross monthly income (31% ratio). You must also have enough income to pay your housing costs plus all of your additional monthly debt (43% ratio). These ratios can be exceeded somewhat with compensating factors like a high credit score. Your credit background will be looked at carefully. Generally speaking, a 620 middle FICO credit score or higher is required for approval.
What is the maximum FHA Mortgage amount that I can borrow?
The maximum amount for an FHA home loan may be determined by several factors:
Maximum Loan Amount: The maximum loan amount allowed for an FHA Mortgage varies from county to county. The largest maximum FHA Mortgage amount in certain high-cost areas today is $729,750. In most areas, the lower maximum FHA Mortgage limit of $271,050 will apply.
Maximum financing: Depending on the state where the property is located, the maximum FHA Mortgage amount will be 97.75% of the appraised value of the home for a refinance loan or 96.5% of the lower of its selling price or the appraised value for a purchase.
How much money is required for the down payment and closing costs?
FHA Mortgage Loans require the home buyer to invest at least 3.5% of the sales price in cash for the down payment and closing costs. For example, if a home has a sales price of $100,000, the borrower must invest at least $3,500 toward a down payment. It is possible for the buyer to utilize gifted money from family members towards the down payment.
Can I get an FHA Mortgage after bankruptcy?
Criteria for FHA mortgage approvals state that if you have been discharged from a Chapter 7 bankruptcy for two years or more, you are eligible to apply for an FHA mortgage. If you are currently in a Chapter 13 bankruptcy that has not been discharged and you’ve made all of your court approved payments on time for at least a year, you may be able to get an approval.
How the Home in 5 Program Works
Five percent of the loan amount is given to a borrower to cover their down payment and a portion of their closing costs. Veterans receive 6 percent and, since they are already eligible for 100 percent financing, the 6 percent covers all of their closing costs and essentially they get into the home for nothing. There is a minimum credit score requirement of 640, and your household income cannot be higher than $88,000. The maximum sales price of the home in Maricopa County of $300,000. NOTE: The Home in 5 program also is now open in Yavapai and Coconino Counties – and if it goes like it has in Maricopa County, expect there to be a mad rush to get approved for the program. You do not have to pay the money back – it is considered a grant and not a loan.
Home in 5 Program Highlights
Here are just some of the highlights:
- 5% down payment assistance. Assistance is calculated as 5% of the initial principal balance of mortgage loan.
- 30 year Fixed Rate Home Loan with Competitive Interest Rate (set by IDA). **The interest rate may change periodically to stay competitive with the market**
- This is a grant, so no repayment is required.
- Eligible loan types: FHA, VA, or USDA-Rural
- Minimum 640 credit score
- Maximum of 45% debt to income ratio
- There is no First Time Homebuyer Requirement
- Maximum qualifying income of $88,000
- Important for Military (Qualified Veterans, Active Duty Military, Active Reservists, Active National Guard)
- Down Payment Assistance is increased to 6%