Requirements
- Credit Score: Conventional lenders typically require a higher credit score compared to government-backed loans. A good credit score, usually above 620, is often necessary to qualify, but a higher score can result in better terms and lower interest rates.
- Down Payment: The minimum down payment for a conventional loan can vary but generally ranges from 3% to 20% of the home's purchase price. The amount required depends on factors like credit score, loan amount, and the specific loan program.
- Income and Debt: Lenders will assess your income, debt-to-income ratio, and employment history to ensure you can afford the loan. Generally, your monthly housing expenses should not exceed a certain percentage of your gross monthly income (often around 28%).
- Property Appraisal: The property you intend to purchase must meet certain appraisal requirements to ensure it's worth the loan amount.
- Private Mortgage Insurance (PMI): If you make a down payment of less than 20%, you may be required to pay for private mortgage insurance to protect the lender in case you default on the loan.
Loan Limit
Conventional loan limits can vary depending on your location and whether the loan is for a single-family home, a multi-unit property, or a high-cost area. In most areas, the conforming loan limit for a single-family home is set by the Federal Housing Finance Agency (FHFA) and is typically updated annually.
Interest Rates
Interest rates on conventional loans can vary based on factors like credit score, down payment amount, loan term, and current market conditions. Generally, borrowers with higher credit scores and larger down payments can secure lower interest rates.
How to Qualify
- Have a good credit score (usually 620 or higher, but higher scores are preferred).
- Proof of stable income and employment.
- Down payment, which can vary but is typically at least 3%.
- Debt-to-income ratio requirements (ensuring that your total monthly debt payments do not exceed a certain percentage of your gross monthly income).
- Pay for private mortgage insurance if your down payment is less than 20%.
- Meet other lender-specific requirements, such as property appraisal and documentation.