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Conventional Mortgages

By definition, a conventional loan is any mortgage that is not guaranteed or insured by the federal government. This is a mortgage that refers to a home loan that follows the guidelines of government sponsored enterprises (GSE’s) like Fannie Mae or Freddie Mac. A conventional loan is either “conforming” or “non-conforming”. These loans follow the guidelines, terms, and conditions set by Fannie Mae or Freddie Mac and those that don’t meet these standards can also be considered conventional. If you aren’t sure about your credit rating, or have down payment concerns, a conventional mortgage can come with super low closing costs and flexible payment options.

To decide whether you qualify for a Conventional loan, we look at:

  • Income and Monthly Expenses. Your standard debt-to-income ratios for a Conventional Loan are 28/36. This can sometimes be exceeded with compensation factors.
  • Your credit history is important. A FICO score of 640 or above is very helpful in obtaining approval.
  • Your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income (28% ratio).
  • You must have enough income to pay your housing costs plus all additional monthly debt (36% ratio).

Down Payments:
A Conventional Loans require the home buyer to invest at least 5%-20% of the sales price in cash for the down payment and closing costs. For example: $100,000 home price, the purchaser must invest at least $5000-$20,000.

Loan Programs for Conventional Mortgages:
Fixed Rate – Most Conventional Mortgages are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same for the entire loan period.

Adjustable Rate Mortgages (ARM):
With an ARM, your initial interest rate and monthly payments are low, but will change during the life of the loan. ARMS are offered with initial fixed rate periods of 3, 5, 7 and 10 years.

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Christine Baker