Is a conventional loan right for me?

These types of mortgage loans offer greater flexibility and buyer freedom when it comes to how the property can be applied. You can buy a home for yourself or as a second vacation home or as income/rental property. The four primary components, beyond the down payment, of a conventional mortgage are; principle, interest, taxes & insurance (PITI).

Upsides of a Conventional Mortgage

Down payments can be as low as 3%
A down payment of 20% waives the requirement for Private Mortgage Insurance (PMI).
Requirement for a PMI can be cancelled when the Loan-to-Value of your mortgage is in reaches 78%. This means, once you reach a point where you’ve paid off 78% of the assessed value of your home, you’re no longer required to have private mortgage insurance.
A conventional mortgage can be applied to a second home and/or investment properties.

Frequently Asked Questions

What Types of Homes Can I Purchase With Conventional Financing?

A conventional mortgage allows you to purchase single-family homes, condos, investment properties, townhomes, lofts, and second vacation homes. Pretty much anything that is a standard housing type in your area.

Will I Have Mortgage Insurance?

Yes (usually), unless you put 20% down. If you are putting down less than 20%, mortgage insurance will be required. However, when the loan to value (LTV) reaches 78%, it will automatically fall off, reducing your monthly note. With that said, the amount of private mortgage insurance (PMI) you will pay is wholly based on the risk your mortgage presents to the bank/and or lender

How Much Can the Seller Pay Towards My Closing Costs?

Typically, the seller can pay 3% of the sales price towards closing. If you put a down payment over 10% they can pay up to 6% towards your closing. This is assuming that your home purchase is for a primary residence. Investment properties are capped at 2% allowable seller-paid closing costs. None of the seller credits can be used towards the down payment. The down payment needs to come from your own funds and/or gifts.

Conventional

Concerns of a Conventional Mortgage

The lower your credit score, the higher the interest rate on the mortgage.
Lenders typically want to see a credit score of at least 620
Your debt-to-income ratio (DTI) plays a role in whether you qualify or not. DTI is a score based on how much you earn (income) vs. how much you owe (debt).
Two Month PITI Reserve. You may be required to have available assets to cover two months of whatever your PITI requirements might be.