December 29, 2020

How Does it Work?

A Conventional Loan is a mortgage that is not insured or secured by any government program or entity. The borrower will pay all insurance costs. These loans are available through private lenders only, such as mortgage companies, banks, and credit unions. Conventional Loans are one of the most popular loan types because of low interest rates, opportunity for a low down-payment, a wide range of term lengths, and reduced insurance.

What Are the Requirements?

A Conventional Loan requires a minimum 5% down payment for a one-unit, primary residence. If the loan is for a second home or vacation home, the down payment must be at least 10%. For a single-family investment property, 15% minimum is required for the down payment. If the property is for a non-owner-occupied multi-family investment property, the down payment must be at least 25%. Conventional Loans also require the buyer to pay all insurance costs however, when the buyer puts down 20% or more the mortgage insurance is eliminated due to loan-to-value.

You may also use financial gifts towards the closing costs and down payment. This means if your closing costs equate to $10,000, you may accept a gift of $10,000 from someone and use that towards your costs. Many loans don’t allow this because it is not an indication of monthly income.

Loan limits are also a factor in Conventional loans. These limits vary by state and even by county. This means that you cannot take a loan out that is higher than the loan limit. As of January 1, 2021 the new Loan Limit for a one-unit home in Upstate/Western New York counties is $548,250.

How Do I Qualify?

The only way to absolutely know if you qualify for an Conventional Loan is to talk to a licensed mortgage loan officer. They will consider the following factors:

  • Your employment history. Is it stable? How long were you with your past and current employer?
  • Your credit score and ability to pay your correlated down payment accordingly
  • Your debt to income ratio

Call the experts at Premium Mortgage Corporation to find out if you qualify!