Conventional mortgages are the most commonly used financing option across the board. This is because a conventional mortgage is the financing box that the majority of home buyers fall into as well as the financing program provided by nearly every lending institution. The conventional mortgage has standard requirements that lenders can base their requirements off of as a benchmark. From there, they will add or remove what they feel they want to have as their requirements to lend their money.
What is a conventional mortgage?
Firstly, conventional mortgages are full document financing options for home buying and refinancing. They are backed by Fannie Mae and Freddie Mac. Fannie and Freddie are also the underwriters of these mortgages and is where a lending institution that is going to sell their mortgages on the secondary market, will make sure all of the necessary boxes are checked in regards to what Fannie and Freddie require to purchase the loan.
How do you qualify?
Secondly, qualifying for a conventional mortgage requires a number of documentation starting with your most recent 2 years of tax returns and W-2s or 1099s.
If a borrower receives an hourly rate of income, the lender is typically going to take the average of the most recent 2 years of income. That said, if the first year’s gross income is $86,000 and the next year $125,000, the lender will use $105,500. The result of the average is the established qualifying income.
In contrast, a salary employee who has recently received a raise would be able to qualify on the new income shown on the salary award letter rather than the two year average.
What is the credit requirement?
In addition, every lender is going to have a credit requirement for a conventional mortgage. The minimum is going to depend on the lender but is typically around a 620 FICO score.
How much down payment is needed?
Furthermore, the required down payment is as low as 3%. There are some lending sources that have DPA (Down Payment Assistance) programs. DPA programs go with the conventional loan to cover down payment and closing costs up to 105% of the value. Otherwise the minimum down payment is going to be 3%.
Who is a conventional mortgage for?
A conventional mortgage is for nearly everyone who has stable income. The income should be stable for a minimum of 2 years. In addition, this is a great program for the first time home buyer as it is the lowest rate and has guidelines specific to the first time home buyer.
If you are looking to get qualified for a conventional mortgage contact Valor Lending Group. We can pre-qualify and prepare you to buy or refinance your home.
Valor Lending Group
“Pride in Lending”
Diamond View Tower
350 10th Ave – 10th Floor
San Diego, CA
Direct: (619) 535-9324
Fax: (619) 255-0602