This ARTICLE On Preparing For A Conventional Mortgage On Purchase And Refinance Was PUBLISHED On November 20th, 2020
If you are currently shopping for a mortgage or have had a mortgage in the past, you are probably familiar with the term conventional mortgage.
- In this blog we will detail what a conventional mortgage means
- We will discuss and cover how do you prepare to apply for a conventional mortgage
- We will guide our viewers the steps to get preapproved to buy a home with a conventional mortgage with Gustan Cho Associates
- The qualification and pre-approval process is the most important step of the mortgage process
- The number one reason for a last minute mortgage denial is due to the loan officer not properly qualifying the borrower
In this article, we will discuss and cover Preparing For A Conventional Mortgage On Purchase And Refinance.
Preparing For A Conventional Mortgage: Why Conforming Loans Are So Popular
Conventional mortgages are the most popular mortgage loans throughout the United States.
- During the real estate crash of 2008, the federal government took control over the government sponsored entities (GSE;s) FANNIE MAE, and FREDDIE MAC
- Fannie Mae and Freddie Mac are responsible for the guidelines surrounding conventional mortgage loans
- They have standardized guidelines such as loan to value, debt to income ratios, credit score requirements, tradeline history requirements, and reserve requirements
- Conventional mortgages conform to the maximum loan amounts set by the Federal Housing Finance Administration (FHFA)
- There is quite a bit of regulation throughout the conventional mortgage world. It is true, a conventional mortgage is slightly more difficult to qualify for compared to an FHA or VA mortgage loan
While the federal government does look over Fannie Mae and Freddie Mac, it is important to understand a conventional mortgage is NOT a federally backed loan such as FHA or VA.
Preparing For A Conventional Mortgage: Fannie Mae And Freddie Mac Agency Guidelines
Basic Conventional minimum requirements:
- 620 credit score
- 3% down payment for first time home buyers
- 5% down payment for repeat home buyers
- Seasoned tradelines on credit report
- Debt to income up to 49.99%
- Reserve requirements
Refinancing VA To Conventional Loans
With the removal of loan limits on VA mortgage loans, we have seen numerous veterans refinance their VA mortgage into a conventional loan to free up their eligibility.
- Having a full $36,000 of VA eligibility on their certificate of eligibility means a veteran can purchase a home without a loan limit
- Many veterans are taking advantage of this low rate environment
- Refinancing out of a VA mortgage on your current primary residence frees up you to buy a new primary residence without a down payment
- Depending on the amount you owe, this step may not be necessary
But if you were a veteran trying to buy a higher priced home, refinancing your current VA loan into conventional will free up the eligibility required.
Refinancing FHA To Conventional Loans To Eliminate FHA MIP
Refinancing out of an FHA loan to drop private mortgage insurance.
- This may be one of the best times in the history of the 30 year fixed mortgage to complete a refinance if you are currently in an FHA mortgage
- We have seen a steady rising home values across the nation and historically low interest rates put forth by the COVID-19 coronavirus outbreak
- These two factors may allow you to refinance your FHA loan into a conventional mortgage and drop your monthly mortgage insurance premium
- If you are in an FHA loan, there is a good chance you pay monthly mortgage insurance
- While this mortgage insurance is productive and it keeps HUD (The U.S Department of Housing and Urban Development) funded to offer mortgage loans, it is a cost to you
- This monthly mortgage insurance adds up as you continue to pay your mortgage
- If you have a 20% equity position or better, it is time to complete the refinance
Please call Mike Gracz and 630-659-7644 to see how much dropping your mortgage insurance can save you on your monthly payment and over the life of your loan.
Preparing For A Conventional Mortgage: Starting The Qualification And Pre-Approval Mortgage Process
Applying for a conventional mortgage with Gustan Cho Associates is an easy process.
- The first step is to call Mike Gracz on 630-659-7644
- Mike will go over your mortgage qualifications during a one on one mortgage consultation
- After your initial phone call, a license loan officer in your state will send you an application link
- This link can be filled out on your cell phone or computer
- You will be giving your loan officer permission to verify your credit report
You will then need to send in some required documentation.
Documents Required To Start The Mortgage Process
Depending on your sources of income, the documentation will be different.
- The most common documentation you need to send in is 60 days worth of bank statements to source the down payment, 30 days worth of pay stubs, driver’s license or government issued photo ID., last two years of W-2s
- Depending on your structure of pay, you may need to send in your last two years of federal tax returns as well
- Once your loan officer receives your completed application and the required documentation, they can start to work on your conventional preapproval
Remember the guidelines above, these loans are slightly harder to qualify for compared to FHA and VA mortgage financing.
Preparing For A Conventional Mortgage: Benefits Of Using Conventional Loans
Advantages to using a conventional loan.
- It is a myth that a 20% down payment is required to use a conventional mortgage
- As a first-time home buyer, you can put down as little as 3% with a conventional loan
- If you are not a first-time home buyer, 85% down payment is required
- These conventional mortgages will have added mortgage insurance that does go away, unlike FHA mortgages
- The fact that your mortgage insurance will eventually disappear can help you save money on a monthly basis
- You may also choose lender paid mortgage insurance which is not an option on an FHA mortgage
- This builds the mortgage insurance premium cost into your interest rate
- This usually lowers your overall monthly payment compared to paying monthly mortgage insurance
- Another advantage of a conventional mortgage is the appraisal process
- Most listing agents like to see a conventional preapproval
- This is because the appraisal restrictions are slightly looser compared to FHA and VA appraisal requirements
- If a home needs a little upkeep, a conventional mortgage is usually the route you need to go
For specifics on the difference between an FHA AND CONVENTIONAL APPRAISALS, please see our blog on this topic.
Not All Lenders Have The Same Guidelines On Conventional Loans
Gustan Cho Associates are experts in all mortgage financing including conventional mortgages. We are up to date on all of our conventional guidelines. There have been some significant changes due to the COVID-19 coronavirus outbreak. Mainly surrounding employment. If you were laid off or furloughed during the pandemic, mortgage lenders must use your year to date figures to calculate your income. It is unfortunate, but these guidelines are very cut and dry. This has stopped many of our clients from qualifying for a home loan. Hopefully we get over this hump soon and everybody is back to work with their
normal hours. If you have been turned down for a conventional mortgage, we encourage you to give us a call. We go directly off Fannie Mae and Freddie Mac guidelines with no additional lender overlays. For questions surrounding conventional mortgages, please call Mike Gracz on 630-659-7644 or send an email to firstname.lastname@example.org. The team at Gustan Cho Associates is available seven days a week even during the holidays. For faster response, you may also send a text message to 630-659-7644. With the booming housing market and historic low mortgage rates, this is a great time to buy or refinance a home with a conventional mortgage. We are here to help. We encourage you to call us today.