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A conventional loan is a type of mortgage that is not part of a specific government program like Federal Housing Administration [FHA], Department of Agriculture or the Department of Veterans Affairs loan program.
Why should you choose a Conventional Loan?
The Conventional Mortgage offers the best interest rates and loan terms. This usually results in lower monthly payments and since most people choose a fixed-rate loan over an adjustable rate mortgage, they don’t have to worry about rising mortgage rates, which makes it easier to budget.
Qualifications for Conventional Loan
There are Three Basic Requirements
1) Make a sizeable down payment.
The standard down payment for a conventional loan is anywhere between 3 and 25% of a home’s value depending on the borrower’s credit and financial condition.
2) Prove a stable income.
In qualifying for a conventional loan, your monthly mortgage payments and monthly non-mortgage debts must fall within certain ranges. For example, a lender may require the person’s monthly mortgage payments not exceed 28 percent of their gross monthly income. This might include taxes and insurances. In addition, their monthly mortgage payments, when combined with your other monthly debt payments (car loans, student loans, credit card bills, etc.), may be limited to a maximum of 36 percent of gross monthly income.
3) Good Credit Score
Credit score also plays a vital role in qualifying for conventional loan. In fact most lenders asks for minimum FICO credit score which lies around 620
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Qualifying for a Jumbo Mortgage
If one set his/her aim for the house that cot more than they have in their bank account, all they need is Jumbo loan and if they opt one,they will face much more rigorous credit as compare to that of the conventional loans.
As the loan is concerned, minimum requirements for a jumbo have gotten increasingly stringent since 2008. To get your loan approved one need a stellar credit score i.e. above 700 and have low debt to income ratio which must be under 43%.
To get this loan, one need to prove that they have accessible income through which they can cover the payments of jumbo loan,which are likely to be high if the person is opting for standard 30 year,fixed-rate plans.
If the person who is taking loan is self-employed, then income requirements are greater. They need to show the two years of tax return sand at least 60 days of current bank statements. That person also keeps in mind that he/she have to prove that they have liquid assets to qualify and cash reserves equal to six months of payments.
10% – 15% Down Payment
About FHA Loans:
An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate income borrowers, FHA loans require a lower minimum down payments and credit scores than many conventional loans. As of 2019, you can borrow up to 96.5% of the value of a home with an FHA loan (meaning you’ll need to make a down payment of only 3.5%). You’ll need a credit score of at least 580 to qualify. If your credit score falls between 500 and 579, you can still get an FHA loan provided you can make a 10% down payment. With FHA loans, your down payment can come from savings, a financial gift from a family member or a grant for down-payment assistance. All these factors make FHA loans popular with first-time homebuyers.