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Conventional Loans

Conventional mortgages can be used to finance the purchase of a home or to refinance a current mortgage under more favorable terms. They can be issued with a fixed or variable interest rate and vary in term length—typically in 15- or 30-year terms.

Conventional mortgage loans differ from other mortgage loan options in that they are not offered or backed by a government agency and are instead provided by private lenders, like banks and mortgage companies. The terms and guidelines of a conventional mortgage loan are set by two of the Sponsoring Government Enterprises (GSE)—the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac).

In most instances, conventional loans require borrowers to submit a 20% down payment to qualify for the loan; however, both Fannie Mae and Freddie Mac have a conventional loan program that requires a much lower than average down payment—as low as 3%. If a borrower makes a 20% down payment, their PMI is waived, which can save homebuyers a significant amount of money over the life of their loan.

Additional Conventional Loan Qualifications

A minimum FICO credit score of 620.
Minimum of 2 years of steady employment history
A debt-to-income ratio of 45% or better; however, some exceptions may be made.
An escrow account is required when less than a 20% down payment is made to ensure taxes and insurance are covered.
Conventional loans can be used to purchase nearly any residential property type and can be used towards the purchase of a primary residence, second or vacation home, multi-family development, or investment property.

Low Down Payment Conventional Loan Options

Qualifying for a home loan once seemed far out of reach for many individuals because many loan programs once required a significant down payment, strict credit score requirements, or property qualification restrictions.

To encourage more borrowers to join the market, government-sponsored enterprises developed new loan programs with more attractive and less restrictive loan requirements that opened the doors for many to purchase a home of their own. Government-Sponsored Enterprises, or GSEs, are private institutions established through Congress to provide funding to lenders and guaranteeing third-party loans. They also purchase loans on the secondary market, furthering the contributions to lenders which in turn enable them to offer more loan programs.

The most commonly known GSEs are Freddie Mac and Fannie Mae and the affordable home loan programs they provide to potential homebuyers—the HomeReady Loan and the Home Possible Loan.

HomeReady Loan & Home Possible Loan

The HomeReady Loan was created and is sponsored by Fannie Mae; this program allows for home loans to be financed with as little as 3 to 5% down. The Home Possible Loan is a similar mortgage program provided by Freddie Mac with a down payment requirement as low as 3%. With the lower down payment requirements and both loans accepting borrowers with a FICO score of 620 or higher, these programs enable more borrowers with moderate income levels to afford to buy a home.
To learn if you qualify for a HomeReady or Home Possible conventional loan, contact us today to review your mortgage needs and current financial standing. We are here to help you go home.
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