CONVENTIONAL LOANS
ALL ABOUT CONVENTIONAL LOANS
Conventional loans from All America Funding can offer greater flexibility and lower costs than FHA loans. If you are a borrower with a strong credit history and can make a large down payment, a conventional loan may be the best option for you. While these loans are more stringent than FHA loans, they can definitely end up benefiting you financially.Conventional loans are loans that have not been insured or guaranteed in any way by a government agency (FHA, VA, USDA). Private lenders, such as mortgage companies or banks, back conventional loans.
Below are some basic facts about conventional loans:
- Conventional loans are either conforming or not conforming.
- Conforming loans follow the guidelines of government-sponsored entities like Fannie Mae or Freddie Mac. These guidelines include the loan limits, the credit score requirements and debt-to income ratios.
- Non-conforming loans do not follow guidelines from government-sponsored entities. Non-conforming loans are typically referred to as “jumbo loans.”
- Conventional loans require a larger down payment than FHA loans. The down payment amount may vary, based on the creditworthiness of the borrower and the several other factors. Typical down payments are between 5%-20% of the purchase cost.
- If the down payment on conventional loans are less than 20% of the purchase price of the house, private mortgage insurance (PMI) is usually required. PMI is a policy that protects lenders in the event of borrowers defaulting on their loan.
- PMI costs vary, depending on factors like the loan-to value ratio and borrower’s credit score.
- Conventional loans have more stringent credit score requirements than FHA loans. Typically, a minimum credit score of 620 is required to qualify for conventional loans. Higher credit scores often lead to lower interest rates and better terms for borrowers.
- Conventional loans can offer fixed-rate or adjustable-rate options:
- Fixed-rate interest rates remain constant throughout the term of the loan.
- Adjustable interest rates start with a fixed rate and adjust it periodically according to market conditions.
- Conventional loans can have property requirements, such as minimum standards for property and eligibility restrictions. These requirements are more flexible than FHA loans.
APPLYING FOR CONVENTIONAL LOANS
- Begin the prequalification. In this step, your financial situation will be evaluated, including your income, debts and credit history. You can apply for a loan if you meet all the requirements.
- Provide us with all the required documents. These include income verification, bank statements and tax returns.
- Order a property appraisal for the property that you are planning to buy. The appraisal determines the value of the property.
- Wait for our underwriting team to evaluate the risk, and decide whether or not to approve your loan.
- After your loan has been approved, you’ll move on to the closing stage. You’ll receive your keys and sign all the paperwork required.
If you have questions about conventional loans or would like guidance as to which loan is right for you, please call us! We want to make sure you are well-informed with your mortgage loan decision, and we look forward to you working with All America Funding!