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Conventional Mortgages
Conventional Mortgages
A conventional mortgage offered by your Indianapolis mortgage lender is a home loan that’s not insured by the federal government and must adhere to conservative Fannie Mae and Freddie Mac guidelines.
A conventional loan is either “conforming” or “non-conforming”. These loans follow the guidelines, terms and conditions set by Fannie Mae or Freddie Mac and those that don’t meet these standards can also be considered conventional. If you aren’t sure about your credit rating, or have down payment concerns, a conventional mortgage can come with super low closing costs and flexible payment options.
Most Conventional Mortgages are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same for the entire loan period. 10, 15, 20, 30 Year Fixed are the options to consider.
With an Adjustable Rate Mortgage (ARM), your initial interest rate and monthly payments are low, but will change during the life of the loan. ARMs are offered with initial fixed rate periods of 3, 5, 7 and 10 years.
Summary
- Minimum credit score: 620
- Minimum down payment: As low as 3% down (income limits apply)
- Debt-to_income (DTI): Typically maxed at 45%
- Gift funds: Allowed
- Seller Concessions: Varies from 3%-9%
- Mortgage Insurance (MI): Required if the down payment is less than 20%
- Occupancy type: Primary, Second, Investment
Advantages of conventional mortgages
- Higher seller concessions allowed with higher down payment
- Less than 10% down = 3% concessions
- 10%-20% down = 6% concessions
- 20% down = 8% concessions
- MI: Drops when loan-to-value reaches 78%
- Cheaper with higher down payment
- Appraisals typically not as strict
- WDOs, water tests an sewer inspections not required
Disadvantages
- Higher interest rates than other loan types
- Must have strong compensating factors if credit is under 680 or DTI is at 50%
- Any repairs notated as “subject to” on an appraisal must be fixed
Who Should Get A Conventional Loan?
Conventional loans are ideal for borrowers with strong credit, a stable income and employment history, and a down payment of at least 3 percent.
