Brownsville Conventional Home Loans

Conventional loans are so prevalent that you probably heard about them long before purchasing a home. But while many people are aware that they’re a type of mortgage, very few first-time homebuyers know what conventional loans entail or how to determine if it is the right choice for their situation.

What is a Conventional Loan?

A conventional loan is a mortgage loan that a government agency does not back. Instead, they are originated, backed, and serviced by private mortgage lenders like banks, credit unions, and other financial institutions. 

While conventional loans may not provide the same benefits as government-guaranteed loans like the FHA, VA, and USDA loans, they remain the most common and widely-used type of mortgage. Conventional loans comprise  76% of all new home sales in the second quarter of 2021. 

Different Types of Conventional Loans

There are two types of conventional loans: Conforming and non-conforming loans. Knowing the difference between the two will help you determine which type can better serve your home-buying needs and requirements.

1. Conforming-Conventional Loans – Conforming loans are home loans that meet the guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that purchase mortgages from lenders. One of the essential guidelines set by Fannie Mae and Freddie Mac is the conforming loan limit (CLL) – the maximum amount you can borrow. This can differ based on the location of the property you wish to purchase. In 2022, the Conforming Loan Limits in most of the United States is $647,200 for one-unit properties and $970,800 for one-unit properties in high-cost areas.
2. Non-Conforming Conventional Loans, on the other hand, are the opposite of conforming loans. They exceed the loan limit and, for this reason, will not be purchased by Fannie Mae or Freddie Mac.

Non-conforming loans are funded by lenders and private institutions and are suitable for homebuyers looking to purchase a property that’s priced beyond the CLL. But because these loans are riskier for lenders, they have very stringent qualification requirements, especially in terms of credit and income.

Conventional Loan Requirements

Conventional loan requirements, like all other types of mortgages, can vary depending on the lender, but they generally follow the exact basic requirements:

• Down payment: 

Depending on your credit history and other factors, a conventional mortgage may require a down payment ranging from 3% to 20%. On the other hand, putting a larger down payment may lower your interest rate and keep you from paying private mortgage insurance (PMI).

• Credit score: 

Your credit score tells the lender how likely you are to repay a loan. Borrowers with high credit scores are often regarded as less risky by lenders and have a better chance of getting approved for a conventional mortgage with better terms.

• Debt-to-income ratio (DTI): 

Your DTI shows lenders how much of your income goes toward debt payments. Before they grant you a loan, lenders need to ensure you’re not taking on more debt than you can handle. Private mortgage lenders prefer borrowers with a DTI of 43% or lower.

• Closing costs: 

The closing costs for a conventional loan can be higher than most types of mortgages. Don’t forget to ask about and prepare for appraisal fees, origination fees, and private mortgage insurance (if your down payment is less than 20%).

Need Help With Your Mortgage?

There’s no right mortgage loan for everyone, so it’s important to learn about the different types of home loans available to you. Conventional loans are flexible and can save you thousands of dollars in mortgage insurance. They are not for people with poor credit. Lenders are taking more risks by originating conventional loans, so you should expect them to scrutinize your financial situation.

If you’re looking for a Brownsville mortgage company that can help you understand mortgages so you can make a confident decision, turn to Capital Home Mortgage! As a direct mortgage lender in Brownsville, Texas, we can help make the entire process faster and more convenient! We’ve helped hundreds of thousands of people smartly finance their homes.