Conventional Loans

A Conventional mortgage is any loan that is not guaranteed or insured by the federal government. Conventional loans adhere to the guidelines set by Fannie Mae and Freddie Mac. There are two types, conforming and non-comforming. Conforming loans follow the loan limits that are set for conventional mortgages and a non-conforming loan does not. The maximum limit for a conforming loan depends on the state and geographic area you live in and can be found here: Fannie Mae Loan Limits. The maximum loan amount for a single-family home in the state of Texas is currently set at $424,100. The Conventional loan comes with either a fixed or adjustable rate with loan terms for a fixed rate consisting of 10,15, 20, 25 and 30 year mortgages. Although there are many options for borrowers, the most common are the 30 and 15 year loans. 

Conventional Loan Requirements
Credit  – Conventional loans generally require a higher credit score than government loans.     However, with a large down payment, approval may be possible with the minimum FICO score of 620. When determining loan approval, consideration is also made to the number of  accounts appearing on the credit report, as well as the length of time the accounts have been open.

Debt-to-Income  – The standard debt-to-income ratios for a conventional loan are 28/36. This means that no more than 28% of your monthly gross income can go towards your monthly mortgage payment (PITI), which includes principal and interest, property taxes, homeowner’s insurance, mortgage insurance and homeowner association dues. In addition, no more than 36% of your monthly gross income can be used for payment of  PITI plus any additional bank loans, credit cards, student loans and vehicle loan payments that you may have. Keep in mind that these ratios are standard and may be exceeded with compensating factors such as a large down payment or a sizable amount of cash reserves.

Down Payment
Standard conventional loans require the borrower to make a minimum down payment of 5% of the appraised value or purchase price. For example, if the purchase price = $100,000, then the buyer would be required to put down $5,000. The larger the down payment that is made creates less risk for the lender and generally means a lower interest rate for the buyer.

Mortgage Insurance
Conventional loans are not insured or guaranteed by the federal government. Therefore, if a borrower makes a down payment of less than 20% of the appraised value or purchase price, private mortgage insurance (PMI) will be required. This mortgage insurance covers the lender for any losses that might occur do to default of the loan. PMI is a monthly fee and becomes a part of your monthly mortgage payment.

We specialize in Conventional loans in Spring, Woodlands, Conroe and Houston Texas.
Find out if a Conventional loan is the right loan for you by calling me at 281-928-7994 or click Apply Now!