{"id":4142,"date":"2024-11-07T13:14:24","date_gmt":"2024-11-07T18:14:24","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=4142"},"modified":"2024-11-07T13:44:13","modified_gmt":"2024-11-07T18:44:13","slug":"conventional-loans-101-an-insiders-guide-to-standard-home-financing","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/conventional-loans-101-an-insiders-guide-to-standard-home-financing\/","title":{"rendered":"Conventional loans 101: an insider’s guide to standard home financing"},"content":{"rendered":"\n

A conventional loan is like the old reliable of mortgages<\/a>\u2014provided by private lenders (not the government), it\u2019s straightforward, flexible, and widely used. If FHA<\/a>, VA<\/a>, and USDA loans are like souped-up, specialized cars, then a conventional loan is the classic, no-frills option. It follows the rules set by Fannie Mae<\/a> and Freddie Mac<\/a>, but it doesn\u2019t come with the extra layers of government red tape. That often means a smoother ride for borrowers.<\/p>\n\n\n\n

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Why are conventional loans so popular?<\/h3>\n\n\n\n

<\/p>\n\n\n\n

Flexible Terms:<\/strong> <\/p>\n\n\n\n

You can customize a conventional loan to fit your life. Want to pay off your house faster? Go with a 15-year loan and save big on interest. Prefer smaller monthly payments? Opt for a 30-year loan.
Example:<\/strong> With a 15-year loan, you\u2019ll own your home outright in half the time, while a 30-year term keeps more cash in your pocket every month.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Lower Costs (If You\u2019ve Got Good Credit):<\/strong> <\/p>\n\n\n\n

Got a solid credit score? A conventional loan rewards you with lower interest rates than government-backed loans. Plus, if you put down 20%, you skip Private Mortgage Insurance (PMI) altogether.
Example:<\/strong> If you\u2019ve got excellent credit and can put 20% down, you\u2019ll not only dodge PMI, but also score a lower monthly payment.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Efficient Processing:
<\/strong>Conventional loans are the bread and butter of the mortgage world, so lenders have streamlined the process. That often means faster approval and less paperwork than government-backed loans.
Example:<\/strong> Since conventional loans are so common and have less strict property requirements,<\/a> you\u2019re likely to have a quicker, smoother process with fewer hiccups along the way.<\/p>\n\n\n\n

<\/p>\n\n\n\n

What do you need to get a conventional loan?<\/h3>\n\n\n\n

<\/p>\n\n\n\n

Credit Score:
<\/strong>Most lenders want to see a credit score<\/a> of at least 620. If you\u2019re above 700, you\u2019re looking at even better rates.<\/a>
Example:<\/strong> A credit score of 700+ could get you lower interest rates which will save you money over the course of your loan. <\/p>\n\n\n\n

<\/p>\n\n\n\n

Down Payment:
<\/strong>The minimum is usually 3%, but if you want to dodge PMI, aim for a 20% down payment.<\/a>
Example:<\/strong> A 20% down payment not only helps you skip PMI but also makes your offer stronger in a competitive market. That being said, 20% is quite a bit higher than what most buyers put down. The typical first time buyer puts down around 7-8% and a standard repeat buyer puts a little over double that down (so if you don’t have the golden 20% downpayment; don’t sweat it).<\/p>\n\n\n\n

<\/p>\n\n\n\n

Income and Asset Verification:
<\/strong>You\u2019ll need to prove your financial health with pay stubs, bank statements, and debt info. It\u2019s like showing lenders a full financial report card.
Example:<\/strong> Be ready with documentation to show your lender that you\u2019ve got the stability to pay back the loan.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Debt-to-Income Ratio (DTI):
<\/strong>Most lenders want to see a DTI ratio <\/a>of 43% or lower (meaning your monthly debt payments shouldn\u2019t eat up more than 43% of your gross income).
Example:<\/strong> Keeping your DTI low could help you secure a better loan and increase your chances of approval.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Property Types:<\/strong>
<\/strong>Conventional loans aren\u2019t picky\u2014they cover everything from single-family homes to vacation homes and investment properties, as long as the property meets the lender\u2019s criteria.
Example:<\/strong> Want a second home or an investment property? A conventional loan has the flexibility to make it happen.<\/p>\n\n\n\n

<\/p>\n\n\n\n

\n
See today’s rates<\/a><\/div>\n<\/div>\n\n\n\n

<\/p>\n\n\n\n

Why do sellers love conventional loans?<\/h3>\n\n\n\n

<\/p>\n\n\n\n

Fewer Appraisal Issues:
<\/strong>Conventional loans usually have fewer strings attached when it comes to appraisals, <\/a>which means fewer repair requests and smoother deals. If a house needs minor fixes, a conventional loan isn\u2019t likely to hold up the sale with a bunch of appraisal red tape, whereas government loans like a VA or FHA might.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Stronger Buyer Profile:
<\/strong>Sellers see conventional loan buyers as having stronger financials\u2014bigger down payments and higher credit scores make for more reliable transactions.
<\/p>\n\n\n\n

Faster Closing:
<\/strong>Because conventional loans typically involve less paperwork, they can close faster than FHA loans. In competitive markets, that\u2019s a huge plus, because a quicker closing<\/a> can mean the difference between winning and losing out on your dream home.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Are conventional loans assumable?<\/h3>\n\n\n\n

<\/p>\n\n\n\n

Most of the time, conventional loans aren\u2019t assumable\u2014meaning the new buyer can\u2019t take over your loan. When selling, the buyer will likely need to get their own financing.
Example:<\/strong> If you\u2019re selling your house, the new buyer will need a fresh mortgage instead of taking over your existing conventional loan.<\/p>\n\n\n\n

<\/p>\n\n\n\n

However, there are some exceptions. In rare cases, some conventional loans may have an assumability clause, but you\u2019d need lender approval, and it\u2019s not common.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Alternatives to Conventional Loans:
<\/strong>If you\u2019re dead set on an assumable loan, FHA and VA loans are generally assumable, letting the new buyer take over the loan\u2019s terms. That could be a perk when selling if your loan has a sweet interest rate.<\/p>\n\n\n\n

<\/p>\n\n\n\n

To sum it all up <\/h3>\n\n\n\n

<\/p>\n\n\n\n

In a nutshell, conventional loans<\/strong> are the go-to choice for most buyers. They\u2019re flexible, straightforward, and give you a ton of options, whether you\u2019re buying a primary residence<\/a>, vacation home, or investment property. <\/a><\/p>\n\n\n\n

<\/p>\n\n\n\n

The no-nonsense terms and lower fees make it the most popular option in the mortgage market. If you\u2019ve got solid credit and can handle the down payment, a conventional loan might just be the best fit for your home-buying needs.<\/p>\n\n\n\n

<\/p>\n\n\n\n

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How much home can I afford?<\/a><\/div>\n<\/div>\n\n\n\n

<\/p>\n\n\n

Claire Gallaudet<\/a><\/p>

Claire is a Mortgage Analyst at Tomo, where she explores the data and trends shaping the housing market. She is especially interested in how economic forces impact homebuyers. A Seattle native, she now lives in Austin, where she balances analysis and communications with teaching yoga and walks around the lake with her dog.<\/p><\/div><\/div>\n\n\n

If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A conventional loan is like the old reliable of mortgages\u2014provided by private lenders (not the government), it\u2019s straightforward, flexible, and widely used. If FHA, VA, and USDA loans are like souped-up, specialized cars, then a conventional loan is the classic, no-frills option. It follows the rules set by Fannie Mae and Freddie Mac, but it […]<\/p>\n","protected":false},"author":31,"featured_media":4177,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13,38],"tags":[61],"class_list":["post-4142","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-home-buying-guide","category-mortgage-dictionary","tag-conventional-loan"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/tomo.com\/blog\/wp-content\/uploads\/2024\/11\/conventional-loans-101-jpg.webp","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4142","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/users\/31"}],"replies":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/comments?post=4142"}],"version-history":[{"count":4,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4142\/revisions"}],"predecessor-version":[{"id":4185,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/4142\/revisions\/4185"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media\/4177"}],"wp:attachment":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media?parent=4142"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/categories?post=4142"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/tags?post=4142"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}