Conventional Loan
From 1st Colorado Mortgage SolutionsA conventional loan is a loan that has no affiliation to the federal government. These loans have terms and conditions set by Fannie Mae and Freddie Mac. Conventional loans are popular with borrowers who have good credit, a stable job and income, and can afford a down payment.
A common misunderstanding about conventional loans is that a large down payment is required to use this home loan program. Conventional financing allows as low as a 3% down Payment when used in conjunction with a private mortgage insurance carrier.
Conventional Loan Benefits
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3% minimum down payment
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Credit scores from 620
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Gift funds are permissible for 100% of down payment
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Almost all types of properties accept conventional loans
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Lower loan rates
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Terms are more flexible and easier to match to your financial goals
Types of Conventional Loans/Loan Terms
Fixed Rate Loans
Fixed-rate loans have an interest rate that does not change throughout the life of the loan. 15-and 30-year terms are the most common, for they offer stable, predictable payments which will not change. Monthly payments are usually very low because they’re spread out over time. They’re great long-term loan if you plan to stay in your home for at least seven years or more.
- Plan to live in home more than 7 years
- Like the stability of a fixed principal/interest payment
- Don’t want to run the risk of future monthly payment increases
- Think your income and spending will stay the same
Adjustable Rate Mortgage (ARM)
Adjustable rate mortgages (ARM) have an interest rate that does change. There is an initial up-front period when the rate is fixed, usually one year. During this time, the interest rate and monthly payments are even lower than a fixed-rate mortgage. However, after the initial period, your rate can change or adjust, usually higher, along with your monthly payments.
- Plan to stay in your home less than 5 years
- Don’t mind having your monthly payment periodically change (up or down)
- Comfortable with the risk of possible payment increases in future
- Think your income will probably increase in the future
Interest only loans are available with LTV’s below 70%. Private Mortgage Insurance required for loans above 80%.
Conventional Loan Limits
Conventional loans offer Standard Balance and High Balance financing options. These loan limits are standard across the board regardless of state or county.
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Standard Balance Conforming Loan Limit: $453,100
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High Balance Conforming Loan Limit: $679,650
Conventional Purchase
Conventional Loan Benefits
- 3% minimum down payment
- Credit scores from 620
- Gift funds are permissible for 100% of down payment
- Almost all types of properties accept conventional loans
- Lower loan rates
- Terms are more flexible and easier to match to your financial goals
Conventional Mortgage | Loan Terms
- 30 Year Fixed
- 20 Year Fixed
- 15 Year Fixed
- 10 Year Fixed
- 5/1 | 7/1 | 10/1 ARM – Adjustable Rate Mortgage
Conventional Mortgage | Property Requirements
Properties eligible for Conventional financing include:
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1 family residence – single family residence (SFR)
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2 family residence – duplex (owner must occupy one unit)
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3 family residence – triplex (owner must occupy one unit)
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4 family residence – fourplex (owner must occupy one unit)
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Single family Condominium – with HOA approval
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Single family Townhouse – with HOA approval
Types of Conventional Loans/Loan Terms
- Fixed-rate loans have an interest rate that does not change throughout the life of the loan. 15 and 30-year terms are the most common, for they offer stable, predictable payments which will not change. Monthly payments are usually very low because they’re spread out over time. They’re great long-term loan if you plan to stay in your home for at least seven years or more.
- Adjustable rate mortgages (ARM) have an interest rate that does change. There is an initial up-front period when the rate is fixed, usually one year. During this time, the interest rate and monthly payments are even lower than a fixed-rate mortgage. However, after the initial period, your rate can change or adjust, usually higher, along with your monthly payments.
- Interest only loans are available with LTV’s below 70%.
- Private Mortgage Insurance required for loans above 80%.
Conventional Refinance
Conventional loans may be conforming loans with loan amounts below $453,100 in most areas across the US and non-conforming loans or commonly known as “Jumbo Loans” over the $417,000.00 limit. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. Some area’s in Colorado with a higher than average home prices may be eligible for a High Balance Conforming Loan up to $679,650.
Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, underwriting guidelines, borrower credit and income requirements, down payment, and suitable properties. Conventional mortgages typically refer to any loan that is not Government insured. A common misunderstanding about conventional mortgages is that a large down payment is required in order to use this home loan program. Conventional financing allows as low as a 3% down payment when used in conjunction with a private mortgage insurance carrier.
Fannie Mae and Freddie Mac announce new loan limits every year.
Conventional Loan Benefits
- Owner Occupied and Investment Property loan allowed
- Minimum 640 Credit Score
- Full income / asset documentation only – W2 and/or tax returns
- 3% minimum down payment
- 5% minimum borrower contribution required for loans over 80% loan to value
- Approved buyer assistance can be used up to 100% combined loan to value
- 45% Debt to Income (DTI) ratio / 50% DTI allowed with compensating factors
Types of Conventional Loans/Loan Terms
- Fixed-rate loans have an interest rate that does not change throughout the life of the loan. 15 and 30-year terms are the most common, for they offer stable, predictable payments which will not change. Monthly payments are usually very low because they’re spread out over time. They’re great long-term loan if you plan to stay in your home for at least seven years or more.
- Adjustable rate mortgages (ARM) have an interest rate that does change. There is an initial up-front period when the rate is fixed, usually one year. During this time, the interest rate and monthly payments are even lower than a fixed-rate mortgage. However, after the initial period, your rate can change or adjust, usually higher, along with your monthly payments.
- Interest only loans are available with LTV’s below 70%.
- Private Mortgage Insurance required for loans above 80%.
Home Ready Program
The Home Ready program is created by Fannie Mae, with borrowers in mind. This conventional program is for those with low to moderate income and are looking to get into a home. This program is ideal for first-time homebuyers but does not limit to just that group of borrowers. Home Ready is for any borrower who is looking to purchase or refinance aa single-family home, if they meet the income limits of the property location.
Home Ready Benefits
- Borrower is not required to be a first-time homebuyer
- As low as 3% down payment
- Financing up to 97% loan-to-value (LTV)
- Cancelable mortgage insurance (restrictions apply); lower MI coverage (25% for LTVs that are greater than 90%-97%)
- HomeReady features pricing that is better than or equal to standard loan pricing
- Gifts, grants, and cash-on-hand permitted as a source of funds for down payment and closing costs
- Innovative underwriting flexibilities expand access to credit responsibility
Home Possible Program
The Home Possible Program is created by Freddie Mac, which has helped many homeowners reach their goals. This program is in place to help both first-time homebuyers and repeat borrowers that have limited resources available to them. There are much more eligible sources of funds for down payments and closing costs with this program.
Home Possible Benefits
- No minimum borrower contribution from narrower personal funds.
- Gift from related persons or other sources of funs are permitted from down payment and closing costs!
- Lower monthly payments for reduced mortgage insurance coverage levels
- Lower monthly payments means lower income needed to qualify
- No minimum loan-to-value (LTV)
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Honesty, Integrity, and Competence
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Assist our clients through any roadblock that may arise
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Help you reach your homebuyer dreams
