As a first time home buyer, you may not have realized that there are many different types of mortgages. Some types of mortgages have income and locational requirements in order for a buyer to qualify for the mortgage. For example, a few weeks ago, I discussed how the USDA’s Rural Development loan may be an option for buyers in certain areas to enter the housing market.  For buyers who don’t qualify for government backed loans, conventional loans are another popular option buyers use to finance the purchase of a home.

What is a conventional loan?

A conventional loan is one that is not backed by the government.  Unlike the rural development loan, conventional loans are not funded by a government agency, but are funded through a private lender.  They may have stricter qualification standards.  You can get a conventional loan through a bank, credit union, or mortgage company.

Conventional loans have fixed interest rates with a length of 10, 15, or 30 years. (There are other options out there too.)  There are also adjustable rate mortgages, but I would recommend talking with your mortgage professional about the pros and cons of these.

What are the qualifications for a conventional loan?

Any loan that you pursue in order to purchase a home in Locust Grove or elsewhere will have qualifications set in place by the bank.  These qualifications verify to the bank that you are capable of paying back the loan.  

While the exact qualifications will vary according to where you are obtaining a conventional loan, here are the common requirements:

  • Credit score of 620 or higher
  • Debt to income ratio of up to 43%  

Down payments: a down payment is required for conventional loans (minimum of around three to five percent), but the amount may vary depending on the buyer’s individual circumstances.  Many people put down twenty percent in order to avoid paying private mortgage insurance.

Private Mortgage Insurance: If you put down less than twenty percent as a down payment for the loan, you may be required to purchase private mortgage insurance.

Like many things in life, the requirements for a conventional mortgage loan are fluid.  They can change in response to the economic climate, so it is always best to talk with a mortgage lender to have the most up to date information.

Whenever you are ready to begin your search for a new home, one of the best first steps you can take is to talk with a lender. Getting some basic information about the types of loans that will be available to you, what your home buying budget could be, and ways that you could improve your buying power will help to make you prepared to enter the housing market. Whether it is a conventional loan or other, having an awesome Realtor®, like me, to help guide you through the home buying process is important too. Feel free to text, email, or call me whenever you have any questions or just need some more real estate related information.