Many potential homebuyers believe that conventional loans have stringent requirements that are difficult to meet. However, this is not entirely accurate, as conventional loans are more accessible than most people realize. Besides, conventional mortgages no longer necessitate a 20% down payment, making them an attractive option for potential homebuyers. This article will provide all the information you need about conventional loans when purchasing a home in Cherokee County and help you determine whether they are right for you.
Conventional Loan Overview
A conventional loan refers to a mortgage that is not backed by the federal government. These loans often follow lending guidelines set by Fannie Mae and Freddie Mac, hence the term “conforming loans.” It’s crucial to note that not all conventional loans are conforming loans. To qualify for a conventional loan, you must meet the basic lending requirements set by Fannie Mae, Freddie Mac, and your lender.
Qualifying Requirements
To qualify for a conventional loan when buying a home in Cherokee County, you must meet the following requirements:
Credit Score
While a minimum credit score of 620 is usually required, borrowers with credit scores above 720 generally receive the lowest conventional mortgage rates. It’s worth noting that a better credit score leads to lower interest rates and lower PMI costs.
Down Payment
Contrary to popular belief, standard conventional loans require only a 5% down payment, and some programs such as Fannie Mae’s HomeReady and Freddie Mac’s Possible Loan allow for as little as a 3% down payment. These programs are ideal for first-time homebuyers and offer reduced rates for private mortgage insurance (PMI). However, if you don’t use one of these programs, you’ll have to pay a minimum of 5% down payment and full PMI rates.
Income/Employment
To qualify for a conventional loan, you must have at least two years of stable and consistent income in the same field or with the same employer. Many types of income can help you qualify, including bonuses, commissions, and contract/gig work. Other sources of income such as retirement income, alimony, child support, and social security payments can also be included.
Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is calculated by comparing your gross monthly income to your existing debt load. For a conventional loan, lenders prefer a DTI ratio below 36%, but ratios up to 43% are common. With compensating factors such as a high credit score or large cash reserves in the bank, you may qualify with a DTI as high as 45-50%.
Conventional Loan Limits
For a conventional conforming mortgage, your loan limit must fall within local loan limits set by the Federal Housing Finance Agency (FHFA), which change annually and are usually higher in areas with high property values.
Property Requirements
When buying a home with a conventional loan, you must meet certain property requirements, such as the property being a single-family home or multi-unit home with no more than four units, your primary residence, and being structurally sound. Additionally, there can be no claims against the property, and an appraisal is required. To verify whether the property you’re considering qualifies, you can consult a Cherokee County agent by calling 770-280-4560.
Final Points on Conventional Loans
Here are some final points to consider when buying a home with a conventional loan:
It’s easier to qualify than you think. You only need a minimum credit score of 620, two consecutive years of stable employment/income, a down payment of 3-5%, and a DTI below 43% (usually).
The mortgage process takes longer than you expect. It takes an average of 30-45 days to process a full mortgage application, during which time the lender reviews all your financial
Lean on Your Atlanta Agent’s Expertise
Is a conventional loan the best financial avenue for you to buy a house? The answer depends largely on whether both you and the property meet the qualifying criteria. You know if you do, and a good Atlanta can help you determine whether the property does. To make the best decision when buying a house in Atlanta, contact us today at 770-280-4560.
FAQs
Keller Williams in Cherokee County Ga
Q: What is a conventional loan?
A: A conventional loan is a mortgage that is not backed by the federal government.
Q: What are the qualifying requirements for a conventional loan?
A: To qualify for a conventional loan, you must meet basic lending requirements set by Fannie Mae, Freddie Mac, and your individual lender. These requirements include a minimum credit score of 620, a down payment of 3-5%, and a DTI below 43% (usually).
Q: Do I need 20% down payment for a conventional loan?
A: No, you don’t. While a 20% down payment used to be required, now you can get a conventional loan with just 5% down. And some loan programs even allow for as little as a 3% down payment.
Q: Can I use unconventional sources of income to qualify for a conventional loan?
A: Yes, lenders will include other sources of income for qualifying purposes, such as retirement income, alimony, child support, and Social Security payment.
Q: What are the property requirements for a conventional loan?
A: The property must be a single-family home or multi-unit home with no more than four units, and must be your primary residence and not a commercial property. The house must also be structurally sound and there can be no claims against the property.
Q: How long does it take to get a conventional loan?
A: The mortgage process for a conventional loan can take between 30 and 45 days on average. Once you submit a full mortgage application, the loan files go through processing and underwriting, during which time the lender reviews all your financial documentation in detail.
Q: Can I get a lower interest rate with a better credit score?
A: Yes, borrowers with credit scores over 720 generally get the lowest conventional mortgage rates.
Q: How can I qualify for reduced rates for private mortgage insurance?
A: You can qualify for reduced rates for private mortgage insurance (PMI) by using programs like Fannie Mae’s HomeReady and Freddie Mac’s Possible Loan, which allow you to buy a home with as little as 3% down.
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