FHA Guidelines

down payment required for loans conventional loans

FHA Loans have several advantages over conventional loans, including lower down payments and more relaxed credit-qualifying guidelines. The federal government created FHA loan programs to encourage homeownership throughout the country. The FHA can help people to obtain a loan with little or no down payment. The FHA does not supply the loan; it simply insures the loan to limit the risk to the lender. These payments depend on percentages. Conventional loan down payment requirements vary from company to company-you may be told by one lender that five percent of the sale price of the home is required, while another may ask for 10%. When it comes to FHA loans, the traditional, bare-minimum down payment amount is 3.5% of the contract sales price of the home.

What is a Conventional Loan?
By definition, a conventional loan is any mortgage that is not guaranteed or insured by the federal government. A conventional loan is generally referring to a mortgage loan that follows the guidelines of government sponsored enterprises (GSE’s) like Fannie Mae or Freddie Mac. Conventional loans may be either “conforming” and “non-conforming”. Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Nonconforming loans don’t meet Fannie Mae or Freddie Mac guidelines, but they are also considered coventional.

What are the Conventional Down Payment Requirements?
Conventional Loans require the home buyer to invest at least 5% – 20% of the sales price in cash for the down payment and closing costs. If the sales price is $100,000 for example, the home buyer must invest at least $5,000 – $20,000.

What will be my Interest Rate?
The interest rate for your home loan will be determined by the type of loan program that you qualify for and your credit score. You might be asking yourself what is the formula to calculate interest rates? Interest rates are driven off of Mortgage Backed Securities (MBS) which are commonly referred to “mortgage bonds”. These value of these bonds determine whether the interest rates rise or fall. Your final rate will determine your payment using the standard calculate mortgage payment formula. Please contact one of our loan officers to see what is todays lending mortgage rate.

What types of property are eligible?
While Conventional Mortgage Guidelines allow you to purchase warrantable condos, planned unit developments, modular homes, manufactured homes, and 1-4 family residences. Conventional Loans can be used to finance primary residences, second homes and investment property.

Can I get an Conventional Mortgage Loan after bankruptcy?
Criteria for Conventional loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for four years or more, you are eligible to apply for an Conventional mortgage. If you have had a Chapter 13 bankruptcy, it must be documented that the your credit reputation has been re-established for at least two years to be eli bible for a Conventional Loan Application.

What Kinds of Loans do Conventional Programs Offer?
Fixed rate loans – Most Conventional Mortgages are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same for the entire loan period. With a fixed rate Conventional Mortgage, you always know exactly how much your monthly payment will be. Contact us for today’s free Conventional mortgage rates.

FHA has their own insurance built into the approval process but this is not the same with a conventional loan.  On a conventional loan there is an entirely separate approval process for private mortgage insurance (PMI) and often these guidelines can be more rigid than the bank’s.  So keep in mind that just because your bank approves your mortgage doesn’t mean you’ll be able to get that loan if you don’t meet the criteria of the PMI company.  Under FHA, one set of guidelines and that’s it.

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