You don't need perfect credit or a huge down payment to get a conventional home loan.
Generally, if you have a credit score of 620 or more, a stable job, and a little as 3% for a down payment, you could qualify.
Basics of Conventional Loans
A conventional loan is just a mortgage that isn't supported by the government. These loans often stick to rules set by Fannie Mae and Freddie Mac.
A conforming loan is a type of conventional loan that follows these rules. While conventional loans might be considered the same as conforming loans, not all of them fit the bill.
Key Requirements for a Conventional Loan
- Credit Score: You'll typically need a minimum score of 620.
- Down Payment: It can be as low as 3-5%, but less than 20% means you'll have to pay private mortgage insurance (PMI) until you have 20% home equity.
- Debt-to-Income Ratio (DTI): This should be below 43%; it's all about how much debt you have compared to your income.
- Loan Limits: Your loan amount can't exceed certain limits, which depends on where you live.
- Stable Income: A track record of at least two years in your job or the same line of work is important.
- Clean Credit History: Lenders prefer if you haven't had a bankruptcy or foreclosure recently.
Remember, these are minimum standards and some lenders might ask for more, especially if you're very close to meeting these requirements.
Down Payment Facts
Many think you need 20% down, but that's not true. You can get a conventional loan with as little as 3% down for certain programs.
Without these programs, typically you'd need 5% down. However, if you go under 20%, you'll need to pay for PMI, which is a type of insurance that protects the lender if you can't pay the mortgage.
Read more: Easy Guide to Down Payment Help in the USA
Income and Work Requirements
When you apply, you're going to need to show that you have a stable job and income, usually for the last two years.
This could be from full-time work, part-time jobs, or even self-employment. They just want to see that you have consistent money coming in.
Understanding Debt-to-Income Ratio
Lenders use your DTI to see if you can afford to pay back the loan. It's the percentage of your income that goes to pay off debts each month.
For conventional loans, they prefer your DTI to be under 36%, though they may let it slide up to 43% (or sometimes a bit higher with some good reasons, like a high credit score).
Property Must-Haves
There are also needs to be met regarding the property you want to buy. Essentially, it should be a one-to-four-unit home that you will live in, not a commercial property.
It must also be in good shape and it will be appraised to ensure it's worth what you're paying.
Check out: Easy Guide to Home Buying for People with Disabilities in 2024
Common Questions
- Is it hard to get a conventional loan? Not as hard as many think! Meet the basic credit score, stable job, and down payment requirements, and you could be in a good position.
- Do I really need 20% down? Nope! As mentioned before, you can start with as little as 3% down on some programs.
- What's the max debt I can have? Usually, your DTI should ideally be under 36%, but it can sometimes go up to 45-50% if you're in a strong financial position otherwise.
- Which is better, FHA or conventional loan? This really depends on your particular circumstances, like your credit score and how much down payment you can afford.
- How long is the approval process? From the time you submit your paperwork, it typically takes about 30 to 45 days to get everything sorted out for a conventional loan.
I hope that makes things clearer! If you're considering a home purchase and think you might qualify, definitely look into a conventional loan to see if it's the right fit for you.
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