CONVENTIONAL LOAN

A Conventional Loan is a type of mortgage that is not backed by the U.S. federal government and is available through private lenders.

Conventional Loans are the most popular type of mortgage loan. They come in a range of terms including the common 15-year and 30-year terms. Since conventional mortgage loans are not insured by the government like FHA or VA Loans, they have stricter credit standards. Some Conventional Loans have the option for down payments as low as 3%* of the purchase price, but if you put down less than 20% you will have to add Private Mortgage Insurance (PMI) to your payment for a period of time.

Conventional Loan Eligibility

Anyone can apply for Conventional Loans —  whether you’re moving up to a larger home, downsizing, buying a vacation home, or buying for the first time. However, all applicants must meet certain loan requirements, including: 

• Proof of employment history and verifiable income
• A minimum credit score of 620 
• A debt-to-income ratio (DTI) of 45% or less (see below)

Conventional Loan Credit Score Requirements

Conventional mortgages generally require higher credit scores (typically at least 620) and lower DTI ratios than government-backed mortgages such as FHA Loans. There are several ways to raise your credit score before applying for a mortgage.

Conventional Loan Down Payment Requirements

Many people believe that you need a 20% down payment for a Conventional Loan, and while a 20% down payment means you won’t have to pay mortgage insurance, there are also low down payment options. Qualified buyers can put as little as 5%** down on their Conventional Loan payments and, in some cases, even 3%*. 

Conventional Loan Debt-to-Income Ratio (DTI) Requirements

Your DTI is one way lenders assess how you manage your finances. The highest allowable DTI ratio for a government-backed loan is 50% but it’s typically in the 43% - 45% range for Conventional Loans. Your DTI is your total recurring monthly debts (student loans, credit card payments, etc.), divided by your monthly pre-tax income, expressed as a percentage. For example, if your rent is $1,000 per month, your car payment is $500 per month, and your monthly credit card payment is $800, your total monthly debt is $2,300. If your gross income is $6,000 per month, then your DTI is roughly 38% (2,300 ÷ 6,000 = 38.3).

Private Mortgage Insurance (PMI) for Conventional Loans

When you finance your home with a conventional mortgage and pay less than 20% toward the down payment, you will be required to pay PMI for a period of time. Unlike some government loans that require mortgage insurance for the life of your loan, PMI is cancellable once you reach 20% equity.

Properties Eligible for Conventional Loans

One of the many perks to Conventional Loans is that they can be used to finance any type of property – primary residences, second-homes, rental properties, or even investment properties. With most other loans, the property which you are financing must be your primary residence.

How to Apply for a Conventional Loan

Applying for a Conventional Loan is easy. To get started, you will want to gather the following:

• Proof of income and employment (pay stubs, tax returns, W-2 statements etc.)
• Documentation of financial assets (bank statements, etc.)
• Residential history (previous two years’ worth)
• Your credit history (it’s also a good idea to check your credit report - not score - here)
• Identity information like your driver’s license, Social Security card, and date of birth in order to apply

To start your Conventional Loan application and get preapproved click here, to find a local loan officer click here.

If you have questions and want to speak to someone right away, give us a call at 1.413.759.8944.

*Payment example: Stated rate may change or may not be available at time of rate lock. If you bought a $250,000 home with a 30 year loan at a fixed rate of 6.5% (6.706% Annual Percentage Rate), with a down payment of 3%, for a loan amount of $242,500, you would make 360 monthly payments of $1,533.00. Payment stated does not include mortgage insurance, taxes and homeowners insurance, which will result in a higher payment.
 
**Payment example: Stated rate may change or may not be available at time of rate lock. If you bought a $250,000 home with a 30 year loan at a fixed rate of 6.5% (6.706% Annual Percentage Rate), with a down payment of 5%, for a loan amount of $237,500, you would make 360 monthly payments of $1,501.00. Payment stated does not include mortgage insurance, taxes and homeowners insurance, which will result in a higher payment.