Conventional Home Loans, Abilene Texas

When looking around for a mortgage, you may hear the words “conventional” and “conforming” used by mortgage lenders and loan officers.

If you’re new to the housing market, all these terms being thrown around casually feel overwhelming, but don’t worry because we’re here to translate. This guide will help you understand conventional mortgages better.

What Is a Conventional Loan?

A conventional loan is the most common type of mortgage offered by lenders. This loan is not guaranteed by a federal agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the United States Department of Agriculture (USDA), which means that the loan is solely between you and your lender. The vast majority of homebuyers use conventional loans.

Types of Conventional Loans

Conventional loans are classified as either conforming or nonconforming.

Conforming loans meet the standards set by Fannie Mae and Freddie Mac, while nonconforming loans do not. Fannie Mae and Freddie Mac are two entities managed by the FHFA that purchase and guarantee conforming loans. Most lenders prefer to offer conforming loans as they pose less risk due to the financial backing provided by Fannie Mae and Freddie Mac.

The Benefits of a Conventional Loan

Although government-insured loans (like the FHA loan) have become more prevalent in recent years, conventional loans continue to dominate the market for the following reasons:

     1. Higher borrowing limits

The FHA loan limit for most areas in 2022 is $420,680, while the conventional loan limit is $647,200.

     2. Flexible terms

Conventional mortgage loans offer greater flexibility in terms of loan duration. Borrowers can choose between 10, 20, and 25-year terms, in addition to 15 and 30-year options usually offered by government-backed loans.

     3. You can cancel mortgage insurance

Conventional and FHA loans require mortgage insurance, but only conventional mortgages allow you to cancel private mortgage insurance (PMI) after achieving at least 20% equity in your home.

     4. Available for many property types 

You may utilize a conventional mortgage for various property types, including second homes, vacation homes, and rental properties. One of the most significant limitations of government-backed loans is that you can only use them for primary residences and certain types of FHA-eligible properties.

How to Get a Conventional Mortgage

The first step toward obtaining a conventional loan is submitting a mortgage application to your chosen lender. This could be a bank, a credit union, or direct lenders like Capital Home Mortgage.

Regardless of where you apply for a conventional home loan, your lender will want to ensure you meet specific criteria. 

     1. Credit score

Most conventional lenders require a credit score of 620 or higher to qualify for a conventional loan. The higher your credit score, the better your interest rates will be.

     2. Debt-to-income (DTI) ratio

Lenders will evaluate your debt-to-income ratio to determine how much you owe relative to your income. The standard DTI requirement for a conventional loan is 43% or less, though some lenders may be more lenient.

     3. Down payment

The standard down payment for conventional loans was 20%, but lenders are now willing to accept as little as a 3% down payment from borrowers with stellar credit. 

Here’s the catch: if you pay less than 20% down, you’ll also have to pay for private mortgage insurance until you’ve built up 20% equity on your home.

     4. Income and employment

Conventional loan lenders want to ensure that you have stable employment and that your income is enough to cover the loan’s monthly payments. They will require you to present your recent payslips and W-2 forms as proof of income and employment.

Is a Conventional Loan My Best Option?

For the majority of borrowers with good credit, the answer is yes. However, it depends on your circumstances and financial objectives.

The home loan specialists at Capital Home Mortgage can help you explore your options to help you decide whether or not a conventional loan is your best option. If for some reason, you fail to qualify for a conventional mortgage, we can help you find a different mortgage product that better fits your needs, lifestyle, and budget.

As a direct mortgage lender in Abilene, we control the mortgage process entirely, from application to closing. We can make homeownership a reality for you!