CONVENTIONAL LOANS

A Conventional Mortgage is a type of mortgage that is not backed by the U.S. federal government and is available through private lenders. Conventional mortgages are the most popular type of loan. They come in various terms, including the common 15-year and 30-year options. Since conventional mortgage loans are not insured by the government, like FHA or VA Loans, they have stricter credit standards. Some conventional mortgage options allow for down payments as low as 3%* of the purchase price, but if you put down less than 20%, you will need to add Private Mortgage Insurance (PMI) to your payment for a period of time.

Conventional Loan Eligibility

Anyone can apply for conventional mortgages—whether you’re moving up to a larger home, downsizing, buying a vacation home, or purchasing for the first time. However, all applicants must meet certain loan eligibility requirements, including:

- Proof of employment history and verifiable income

- A risk-based decision made based on credit profile and ability to repay.

- A debt-to-income ratio (DTI) of 45% or less (see below)

Conventional Loan Credit Score Requirements

Conventional mortgages generally require higher credit scores (typically at least 620) and lower DTI ratios compared to government-backed mortgages such as FHA Loans. There are several ways to improve your credit score before applying for a mortgage.

Conventional Loan Down Payment Options

Many people believe that a 20% down payment is necessary for a conventional mortgage. While a 20% down payment means you won’t have to pay mortgage insurance, there are also attractive down payment options available. Qualified buyers can put down as little as 5%** on their conventional loan payments and, in some cases, even just 3%*.

Conventional Loan Debt-to-Income Ratio (DTI) Requirements

Your DTI is one way lenders assess how you manage your finances. The highest allowable DTI ratio for a government-backed loan is 50%, but it is typically in the 43% - 45% range for conventional loans. Your DTI is calculated by taking your total recurring monthly debts (such as student loans and credit card payments) and dividing it by your monthly pre-tax income, expressed as a percentage. For example, if your rent is $1,000 per month, your car payment is $500 per month, and your monthly credit card payment is $800, your total monthly debt would be $2,300. If your gross income is $6,000 per month, then your DTI is roughly 38% (2,300 ÷ 6,000 = 38.3).

Alternative Loan Options (Reduced Documentation)

- Bank statement loans

- Asset-based loans

- P&L-based loans for self-employed borrowers

- Stated Income - No Verification of income