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.
- When not limited to first time home buyers– No income limits
- Some first time buyer programs do have income limits
- The loan limit for a conventional loan is $766,550 (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:
Owner Occupied Primary Residence down payment requirements
- 3% down payment required for single family homes & condos
- 5% down for 2-family (2-4 unit) residential properties being purchased as owner occupied.
Second Homes – Vacation Homes down payment requirements
- 10% down for a single family or condo
- 2 to 4 unit properties purchased as a second home are considered investment properties
Investment Purchase
- 15% down for a single family or condo
- 25% down for 2 to 4 unit investment purchases
Seller paid closing costs also known as “seller concessions”
- Seller can pay some or all closing costs and prepaid expenses associated with a purchase
- Seller concessions must be negotiated when you purchase a home and included in the sales agreement
- the amount the seller pays can never exceed the actual closing costs and prepaid expenses
Owner Occupied – Primary Residence with 3% or 5% down payment
- Seller can pay only 3% of the sales price toward closing when the down payment is either 3% or 5%
Owner Occupied or Second Home purchases with 10% or more down
- Seller can pay 6% of the sales price if the down payment is 10% or more*
- if the down payment is 25% or more, the seller can pay 9% toward closing ** the amount the seller pays can never exceed the actual closing costs and prepaid expenses
rarely does the total closing costs and prepaids exceed 4% of the sales price so be careful when negotiating for seller concessions
Investor Purchase
- Seller can only pay 2% of the sales price toward closing costs on investor purchases
Qualifying for conventional loans
- Minimum of 620 credit score required by Bookend LendingMortgage 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 38% – 50% debt ratio depending on the borrower profile
- each loan scenario is different depending on down payment, credit score & profile, property type, employment history, etc.
- automated underwriting helps determine the maximum debt ratio for each borrower.
Mortgage Insurance for conventional loans
- mortgage insurance is requied for all loans with less than 20% down
What is the cost of mortgage insurance?
- The cost of mortgage insurance varies by down payment, occupancy, credit score, debt ratio, property type and how you choose to pay the premiums
- Here’s a link to one Mortgage Insurance Company’s site if you want to check out different premiums
- Want a quote specific to you? Just reach out to Renee Duval
What are my choices in mortgage insurance
- mortgage insurance can be paid monthly
- mortgage insurance can be paid in a one time upfront premium (either paid in cash at closing or added to the loan balance)
- mortgage insurance can be rolled into the rate which often results in a lower overall payment
- Renee Duval can provide you a comparison of these options for you to review and determine which is best for you
Conventional rehab & construction loans
We offer a conventional renovation option for primary residences, 2nd home purchases and investor purchases.
Construction loans are available through our broker division or we can refer you to a local lender that offers construction loans.