A conventional mortgage loan is a “conforming” loan, which meets Fannie Mae or Freddie Mac’s guidelines. Since Fannie Mae and Freddie Mac are mortgage businesses backed by the federal government, these lenders have additional capital, giving more access to a wider range of qualified home buyers.

A non-conforming mortgage exceeds conforming lending limitations, referred to as a jumbo loan. For this reason, there is no single set of criteria for borrowers because “conventional loans” encompass numerous unique sets of parameters. On the other hand, conventional loans have stricter credit standards than government-backed loans such as FHA loans.

Here are some guidelines you should follow to apply for different conventional loans:

Fannie Mae and Freddie Mac Conventional Loan Requirements

Fannie Mae and Freddie Mac loans require homeowners to show that they can afford a monthly mortgage payment. Your loan qualification will depend on your credit scores and the percentage of your monthly income that you can devote to housing.

The minimum score required to get a conventional loan is 620. However, most conventional loans require a middle-of-the-road score of 640.

A conventional mortgage will require the following:
A loan-to-value ratio of 80 percent. This is the amount of money the borrower will pay for the house compared to the home’s value.

Jumbo Loan Requirements

A jumbo loan is a home financing loan that exceeds conforming loan limits. Jumbo loan limits are determined by the median value of the homes in a given area.

For example, if the median home value in your area is $200,000, then the jumbo loan limits would be $500,000 for a single-family home.

Jumbo loans are subject to stricter requirements than traditional conforming loan guidelines. This is because the lender is taking on more risk.
A jumbo loan requires the following:

— A higher credit score: Most jumbo loan requirements will require a middle-of-the-road credit score of 680. Scores of 720 and above are best.
— A higher debt-to-income ratio: You may have to have a debt-to-income ratio of 50 percent or higher. This means that your total credit card and other debt payments cannot exceed 50 percent of your monthly income.
— More liquid assets: You may have to show that you have at least 20 percent of the home’s purchase price in liquid assets. You must also have at least 10 percent of the home’s purchase price in the bank.

FHA Loan Requirements

The Federal Housing Administration (FHA) provides loans up to 100 percent of the home’s value. This dramatically increases the buying power of the borrower. Additionally, FHA loans have lower requirements than conventional loans.

To get an FHA loan, you’ll need a middle-of-the-road credit score of 580. However, there are exceptions. If you’re purchasing a home in an area with a high unemployment rate, such as Detroit, you may need a credit score of 500 or higher to get approved for a loan.

Final Advice

Overall, getting a conventional loan is a brilliant idea. If you have limited funds, you may have to opt for a mortgage that you can afford. You should also set aside a reasonable down payment and a solid credit history to get a competitive interest rate.

Contact us at Total Lending Concepts if you are interested in obtaining conventional loans or other forms of mortgages in Colorado Springs. You may get a home loan from us regardless of your position, whether you’re a first-time buyer or you’ve had your eye on a particular house for some time.