What are conventional loans?
Conventional loans (also referred to as conforming loans) are mortgage loans underwritten to the standards/guidelines of Fannie Mae (the Federal National Mortgage Association) and/or Freddie Mac (Federal Home Loan Mortgage Corp). Loans underwritten to these standards can be sold on the secondary market enabling mortgage companies to lend money at very reasonable rates.
- Not limited to first time home buyers– No income limits
- The loan limit for a conventional loan is $417,000 (for a single family home or condo)
Within the family of conventional loans there are many variations including specialty programs for first time buyers, and homes that need repair/renovation.
Minimum down payments for conventional loans:
- 3% down for borrowers qualifying for “Home Ready”
- 5% of the sales price in most markets for single family homes & condos
- 20% down for two-family owner-occupied properties (primary residence)
- (only 15% down for a 2-family home for borrowers qualifying for lower-income programs like “Home Ready”)
- 25% down for 3 or 4 unit owner-occupied (primary residence) purchases
Seller paid closing costs
Seller can pay some or all closing costs and prepaid expenses associated with a purchase but this needs to be negotiated into the contract and is limited as follows:
- for owner occupied purchases of primary residences or second homes, if the down payment is 5% then the seller can pay 3% (of the sales price) toward closing;
- if the down payment is less than 25% (but more than 5%), the seller can pay 6% toward closing (if the closing costs add up to this this much – often the total closing costs and prepaid items add up to only 4% of the sales price)
- if the down payment is 25% or more, the seller can pay 9% toward closing
Qualifying for conventional loans
- Minimum of 620 credit score required by Merrimack Mortgage Company for conventional loans.
- All conventional loans are run through an automated underwriting system to determine the basic eligibility of the borrower.
- Generally conventional loans allow up to a 45% debt ratio but each scenario is different depending on down payment, credit score & profile, property type, employment history, etc. The automated underwriting helps determine the maximum debt ratio for each borrower.
Mortgage Insurance for conventional loans
- monthly mortgage insurance payments may be required on loans with less than 20% down; there are several mortgage insurance options
- Conventional Rehab Loan
We offer a conventional rehab option for primary residences, 2nd home purchases and investor purchases.