Texas Conventional Home Loans

When it comes to financing the purchase of your new home, you have several options depending on your income, debt, credit history, and other factors. While each loan type has advantages and disadvantages, the conventional loan remains the most popular home loan option for both new and repeat homebuyers.

What Is A Conventional Loan?

A conventional loan is any mortgage loan not guaranteed by the government (i.e., FHA, VA, or USDA). Most conventional loans nowadays are considered “conforming loans” because they are written per the guidelines established by Fannie Mae or Freddie Mac – agencies that work to standardize mortgages in the United States. 

The maximum conforming loan amount for 2022 is up to $647,200 in most parts of the country and up to $970,800 for high-cost areas.

Requirements for a Conventional Loan in Texas

Like all other types of mortgages, the requirements for conventional loans can vary from lender to lender, but they generally follow the same minimum requirements:

• Down payment: 

A conventional mortgage may require a sizable down payment. Depending on your credit history and other factors, you can expect to put anywhere between 3% and 20%. A larger down payment, however, may lower your interest rate and save you from paying private mortgage insurance (PMI).

• Credit score: 

Regardless of how much you put down, lenders will consider your credit score when deciding whether or not to approve your mortgage. 

A credit score tells lenders how likely you are to repay a loan. Borrowers with higher credit scores are often regarded as less risky by lenders and have higher chances of qualifying for a conventional mortgage with better terms. Conventional loans require a FICO score of 620 to qualify.

• Debt-to-income ratio: 

Your debt-to-income ratio also plays a critical role in the approval (or rejection).

Your DTI shows lenders how much of your income goes to debt payments, so they know you’re not taking on more debt than you can handle. The lower your DTI, the better. In most cases, conventional loan lenders prefer a DTI of 43% or less.

• Closing costs: 

Borrowers must also consider out-of-pocket expenses during the closing of the loan. The closing costs for a conventional loan can be more than other kinds of mortgages. You may be required to pay appraisal fees, origination fees, and – I f your down payment is less than 20% – you will almost certainly be required to pay private mortgage insurance.

Do you want to know if you qualify for Texas conventional home loan? Pre-qualify with Capital Home Mortgage today!

Private Mortgage Insurance

One of the best things about conventional loans is that they offer greater flexibility in mortgage insurance. Mortgage insurance helps to protect the lender from a possible default. Because it is risk-based, a lower down payment can significantly increase your monthly mortgage payments due to higher PMI.

Most government loan programs require mortgage insurance, some for the life of the loan. Conversely, conventional loans will require private mortgage insurance if your down payment is less than 20%. Moreover, you can request that your mortgage insurance be removed if you’ve already paid more than 20% of your home’s equity.

We strongly suggest putting up a 20% down payment, if you can, to avoid paying mortgage insurance on your conventional home loan.

Is A Conventional Loan Your Best Choice?

Conventional home loans can be an excellent option for borrowers with good credit, a solid financial history, and enough money for a down payment.

However, other types of mortgages have their advantages as well. If you are purchasing your first home, loan programs are available to make the process easier and more affordable.

Capital Home Mortgage is a direct mortgage lender in Texas that provides home loans to many buyers, from first-time buyers to those looking into refinancing their homes. Contact us if you want to learn more about conventional home loans, and we’ll gladly walk you through the application process.