​Conventional Home Loans – The Most Versatile Loan Program

​Whether you're a first time homebuyer, an experienced homebuyer or even if you're looking to buy an investment home, conventional financing has something to offer.  If you’re a traditional borrower, meaning you can verify your income, have decent credit, and have money to put down on a home, the conventional home loan can be a great option. It’s one of the most affordable loan programs, even if you don’t make a 20% down payment. 

Conventional loans often require a skilled originator – someone who knows how to structure the loan to overcome any potential obstacles. Even a borrower with great credit could get disqualified for the smallest details, but here at Fidelity Funding Mortgage Group, we have the most skilled originators who know what it takes to get your loan to the closing table. 

Why Choose Conventional Financing? 

Conventional financing isn’t only the most common kind of loan on the market, it’s the template upon which all other loan programs are built and sets the basic underwriting standards that make the American housing market stable. 

It is one of the most affordable and flexible forms of financing available. It can be combined with second financing to form a Combo Loan, which is great when you need a little help with the down payment. The Combo loan is when you combine a Conventional mortgage and combine it with a Home Equity Line of Credit --and both loans close on the same day.  In a Combo loan scenario, you first borrow 80% of the purchase price with a conventional loan, then 10% with a piggyback loan, and you put 10% down.  This is referred to as a "80/10/10 Combo", and it is the most common type of combo.  There are other types that can be used for making condominium financing easier, called a "75/15/10 Combo".   Read more on Combo Financing HERE

Besides the ability to use a combo loan, conventional financing offers a variety of other benefits for homebuyers in the Clearwater, Florida area including:

• Lower interest rates – Conventional loans have some of the most attractive interest rates besides FHA and VA loans, and they are very rewarding to applicants with high credit scores
• High loan limits – Each year, the government adjusts the maximum loan limit based on the national average housing price increases. Currently, most buyers in Florida can borrow up to $726,200 on a conventional loan.
• Low down payment requirements – Conventional loans require a minimum 3% down for first-time homebuyers or 5% down for experienced buyers. You can also receive some or all of the down payment as a gift as long as you document it correctly.
• A variety of payment options – Most conventional loans are available in both fixed and adjustable-rate terms, although the most popular home loan choice is the 30 year fixed
• Condominium purchases - Conventional loans are the number one  home loan used by Condominium buyers. 
• No prepayment penalties.  Conventional mortgage home loans do not have prepayment penalties or early payoff fees, allowing the homeowner the flexibility to move refinance their home anytime they choose to meet their goals. 

How to Qualify for Conventional Loans 

It’s a myth that you need perfect credit or a 20% down payment to secure conventional financing. The conventional loan program is just as flexible as most other loan programs, especially when you work with an experienced loan originator here in Florida. 

Credit Score Requirements 

Most borrowers need at least a 620 credit score to qualify for conventional financing. This is much lower than most people realize, which is why we want to spread the word about the ease of this program. It’s flexible and affordable – you simply can’t beat it. 

Down Payment Requirements 

As we discussed above, conventional loans have two down payment requirements:

• First-time homebuyers get a break and can put down just 3%. This makes it easier to go from a renter in Florida to a buyer. 3% is $3,000 for every $100,000 you borrow.  A first-time homebuyer is defined as anyone who has not owned a home in the past 5 years.
• Subsequent homebuyers need a slightly larger down payment, but not by much. They need only a 5% down payment or $5,000 for every $100,000 of purchase price.

If you’re buying a condo, you may need a slightly larger down payment of 10% - 25% of the purchase price. 

Loan Size Limits 

Conventional loan applicants can borrow up to $806,500, which is the current Conventional loan limit set by Fannie Mae and Freddie Mac. If you need a higher loan amount, you’ll need a jumbo loan, or you could opt for Combo financing, by adding a second home equity line of credit (HELOC) . 

Private Mortgage Insurance (PMI) 

This is the one topic that tends to scare people, but it shouldn’t. PMI, or Private Mortgage insurance, is an insurance premium that protects the lender if you should default on your mortgage payments.  It can be paid in several ways, but the most common form of PMI comes in the form of monthly premiums that included in your monthly mortgage payment, along with your property taxes and homeowners insurance. 

Many people assume that PMI will make their mortgage payment unaffordable and they’ll pay it forever. Neither is true. 

PMI rates are affordable and are based on your LTV (loan-to-value ratio), your credit score, your debt-to-income ratio and several other factors. The larger your down payment and the better your credit score, the less PMI you’ll pay each month. But here’s the better news – you don’t have to pay PMI forever. Unlike FHA loans which charge mortgage insurance for the entire term, conventional loans require PMI only until you owe less than 80% of the home’s value. 

There are a few ways to make that happen:

• Make your scheduled payments and your PMI will end as shown on your original amortization table. Each payment brings your principal balance down, which decreases your loan-to-value ratio. Once you owe less than 78% of the home’s value, PMI automatically falls off. In some cases, a lender may allow you to drop PMI at 80% of the home's value, provided you have made timely payments for 24 months.  IF DROPPING PMI IS ONE OF YOUR GOALS, Always reach out to your lender for their specific policy.  

• Make extra principle reduction payments (over and above your regular monthly payments) and speed up the process. If you make one extra principal payment each month, you’ll pay the principal balance down faster and can request cancelation of the PMI much sooner.

• Pay for a new property valuation report and request cancelation sooner. If you know your home has appreciated, you can contact your payment servicer and pay for a property valuation and prove that you owe less than 80% of the home’s value to get PMI canceled. 
• For more information on PMI, CLICK HERE.

Automated Underwriting System (AUS) 

Although a human underwriter reviews every conventional loan for approval, it may surprise you to learn that the ultimate approval or denial decision is based on a computer algorithm, often referred to as AUS (Automated Underwriting System).  There are two major types of AUS system for conventional loans and each offers a slightly different type of underwriting methodology.  It takes a skilled originator to know which is best for your application's needs. 

• DO - Desktop Originator, sometimes called DU (Desktop Underwriter), which are both created by Fannie Mae.
• LP - Loan Prospector, which is created by Freddie Mac. 

The data from your application and credit report are run through the lender’s Automated Underwriting System, The human underwriter’s primary function is to apply the guidelines and ensure that the data that the AUS used to make the lending decision was done properly.   

AUS can be good and bad. 

• It’s good because you can get approved fast and can move through the loan process with unparalleled speed to close on your loan. 
• It can be bad when the computer doesn’t understand your situation or if your loan originator didn’t structure your application correctly or ask the right questions. 

At the end of the day, AUS is a skill, and it requires a skilled and experienced originator. Even if you qualify for a loan, if it wasn’t structured properly, you may not qualify. Over the years, we’ve seen many great applications fall through the cracks due to simple lack of experience or a mistake on the part of the loan originator. Working with a skilled operator who can troubleshoot and make sure your loan looks right on paper will increase your chances of approval and a smooth buying experience. 

Get the Conventional Loan Financing you Deserve 

As you can see, Florida residents don’t need ‘perfect’ credit to secure a Conventional loan. You can secure financing with average credit and a low down payment. You must prove you can afford the loan and meet the requirements, but working with a skilled originators like our team, you can get the support you need. 

Conventional financing is flexible, affordable, and a great way to invest in your home. A home is one of the largest investments you’ll make in your lifetime, so you want a loan that’s affordable and easy to understand and an experienced loan team to guide you through the process every step of the way. 

At Fidelity Funding Mortgage Group, we work hard to ensure you understand your loan options including conventional loans. If you’re curious if you’d qualify for a conventional loan or you want to complete an application, contact us today.

For even more information on Conventional loans, click HERE.

WRAPPING UP...

As always, if you’re looking to purchase, refinance or get preapproved to purchase a home anywhere in the state of Florida, we’d love to help.  Simply give us a call so we run some numbers for you and answer all your questions! 

You can also drop us a line HERE »

Yours in successful homeownership,

Derek Bissen
Loan Originator
NMLS#365627
Unconventional Lending Program Director

If you're interest in using combo financing to avoid paying PMI, to avoid jumbo financing, or to make buying a condominium easier, be sure to check out our COMBO Loan Page HERE.