What exactly are conventional loans? Conventional loans are not guaranteed or insured by any government agency. Compared to FHA, VA, USDA are well known loan products that are guaranteed by the government in the event of foreclosure. Conventional loans follow the same guidelines (Fannie Mae, Fredde Mac) but interest rates on them can vary lower or higher. The interest rate on a conventional loan compared to an FHA loan is impacted by Credit Score, Payment history and even the amount of the down payment towards the home purchase. They can also have various term lengths, the most popular tend to be 30 and 15-year terms, with either a fixed or adjustable interest rate. Don’t feel like the Lone Ranger when you consider how many loan types there are. To simplify in general loans are either Conventional or they are not. So when considering which one best fits your need, don’t concern yourself with industry jargon and ask, no question is stupid when ask with sincerity.. The Mortgage industry has a long history of confusion so here are some basics.
Seasoned homeowners are the perfect candidates for conventional loans. Lenders definitely favor people for conventional loans who have higher credit scores for the best rates and also have the resources to apply a larger down payment. Loan programs require 3% to 20 % down payment, conventional loans with the minimum down payment are much harder to find. If a loan is made with less than 20% down private mortgage insurance will be required (PMI). However, this PMI can be cancelled after 2 years have elapsed and the property has 20% in equity. For example, if a home is valued at $300,000, 20% equity would be $60.000 ($300.000 X .20 = $60.000). Conventional loans are really well suited to buy a vacation home or an investment property. Conventional Loan Candidates will normally need a FICO score of 620 or higher and the best interest rates are reserved for those that have earned FICO closer to a 700.
FHA loans requires a minimum down payment of 3%, VA loans minimum down payment is zero ( yes -0) down. A borrower is required to have a minimum FICO score of 580. Poor credit or pay history does not necessarily rule an applicant out, however a late pays or a foreclosure may require a larger down payment above the 3%. The loan is secured by the government in the unfortunate circumstance of a default by the borrower. You can see from this example why lenders like Government insured loans. Maximum loan amount for FHA is $271,500, but some areas like Miami, Palm Beach, Broward County Florida have higher loan limits of $345,000. Conventional and VA loans cap at $417,000. Many areas of California is capped at $625,000. Google FHA loan limits and go to the HUD website for current loan limits.
If a person is considering a Conventional loan it would be a strategic move to get your Credit Scores in order. You are entitled to a free copy of your credit report once a year and can be obtained from, freecreditreport.com, annualcreditreport.com or even my preference CreditKarma.com. I find the communication and the updates are quicker from CreditKarma.com. They also have a great App for your smart phone to receive updates on your credit scores or alerts when it is pinged.
The Larry Stepp Team at Gustan Cho Associates are available 7 days a week, holidays and weekends.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com