Spokane Conventional Home Loans

What is a Conventional Mortgage?

A conventional mortgage is a homebuyer loan made available by private lenders such as banks, credit unions, or mortgage companies not guaranteed or insured by the federal government. They differ from government-backed loans such as those made by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

Although conventional loans are not directly given or secured by the government, they can be guaranteed by the two Government Sponsored Enterprises (GSEs), Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

What are the Types of Conventional Loans?

There are two categories of conventional loans: conforming and non-conforming. Conforming loans adhere to the loan limits established by the Federal Housing Finance Administration, or FHFA. In contrast, non-conforming loans do not satisfy these criteria.

• Conforming Loans

A conventional conforming loan is a mortgage that fulfills Fannie Mae and Freddie Mac’s funding criteria and the Federal Housing Finance Agency’s (FHFA) loan limits. These loans have an annual amount restriction that cannot be exceeded. For example, in 2023, the maximum in Spokane is $726,200, as in most of the United States, but more in certain costly regions.

This type of loan is frequently advantageous for borrowers with outstanding credit due to its low-interest rates, and lenders prefer it because it can be packaged and sold on the secondary mortgage market. Typically, the requirements for such loans are based on the borrower’s credit score, income, and down payment amount.

• Non-Conforming Loans

Non-conforming conventional loans are mortgages that do not conform to the guidelines established by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. This means that these entities cannot buy or sell them.

This nonconformance may occur for several reasons. The loan amount may exceed the Federal Housing Finance Agency (FHFA) limits for Spokane and most of the United States in 2023, which is $726,200. The borrower’s credit score or debt-to-income ratio may not meet the requirements, or the loan may have an unconventional structure, such as an interest-only mortgage or a term other than 15 or 30 years.

Even though non-conforming loans can provide financing to borrowers who may not meet conventional requirements, they typically bear higher interest rates than conforming loans due to the increased risk to the lender. Therefore, they must be held by the original lender or sold to other private investors, as they cannot be sold to Fannie Mae or Freddie Mac.

In addition to higher interest rates, these loans may require a larger down payment, a more stringent debt-to-income ratio, higher credit score thresholds, and more significant cash reserves. Non-conforming loans may also have higher closing costs and fees.

Advantages of a Conventional Conforming Loan

Conforming loans offer several advantages for borrowers. Among them are as follows:

• Lower Interest Rates

Conforming conventional loans typically have lower interest rates than other types of mortgages. Lower interest rates can result in substantial savings over the loan’s duration.

• Flexibility

Conventional loans are available in various forms, such as fixed-rate and adjustable-rate mortgages, providing flexibility based on the borrower’s financial circumstances and long-term goals.

• Broad Use

These loans can be used for various purposes, including purchasing or refinancing a property.

• Higher Loan Limits

Spokane’s conforming loan limits in 2023 are as follows: $726,200 for a single-family home, $929,850 for a duplex, $1,123,900 for a triplex, and $1,396,800 for a quadplex, with higher limits in more expensive areas. This can make conventional conforming loans more appealing to buyers of more expensive homes.

• Secondary Market

Lenders prefer conforming loans because they can be packaged and sold on the secondary mortgage market. This is advantageous for borrowers because it enables lenders to declutter their balance sheets, which could result in more favorable terms for new borrowers.

Requirements of a Conventional Conforming Loan

To qualify for a conventional conforming loan, borrowers must satisfy the following criteria:

• Credit Score

Most lenders require a credit score of at least 620 for a conventional loan. However, a higher credit score could result in more favorable terms, such as a reduced interest rate.

• Down Payment

A conventional loan’s standard down payment requirement is 5% of the purchase price. Conversely, conventional loans permit down payments as low as 3 percent for highly qualified borrowers. Nevertheless, a 20% or greater down payment could exempt the purchaser from Private Mortgage Insurance (PMI).

• Loan Limits

According to the Federal Housing Finance Agency (FHFA), the conforming loan limit for a single-family home in Spokane in 2023 is $726,200. A loan that exceeds this threshold requires a jumbo loan.

• Debt-to-Income (DTI) Ratio

For conventional loans, the standard DTI ratio is 45%. While specific requirements may differ from lender to lender, a lower DTI ratio is typically viewed favorably because it indicates a lower risk of loan default.

• Employment and Income

Generally, borrowers must provide evidence of a stable income and employment, and lenders typically require two years of consistent employment.

• Property Use

Conventional loans can be utilized to purchase a primary residence, a second home, or even an investment property.

• Private Mortgage Insurance

If the down payment is less than 20%, private mortgage insurance (PMI) is always required. This, however, can be canceled once home equity reaches 20%. 

Apply for a Conventional Loan with Capital Home Mortgage

Capital Home Mortgage provides Spokane homebuyers access to conventional conforming loans with lower interest rates than other loan types. Spokane homebuyers can avoid private mortgage insurance (PMI) with a 20% or more significant down payment. Capital Home Mortgage’s efficient in-house system guarantees a streamlined loan application and processing experience.

Call (509) 413-0502 to speak with one of our Spokane conforming loan specialists about your needs.