These companies are like giant banks that buy bundles of mortgages in the secondary market, sort them based on risk (like credit scores, loan-to-value ratios, etc.), and then sell them to investors as “mortgage-backed securities.” This allows banks to reinvest in generating more loans because they get their money back quickly.
This is why lenders deny your loan when your scenario or documentation does not conform to Fannie Mae or Freddie Mac guidelines: They can’t recuperate their money until you refinance or sell the house.
A conventional loan is a broader category than a conforming loan. All conforming loans are conventional loans, but not all conventional loans are conforming loans. Most conventional loans are called “conforming loans” because they follow specific rules set by Fannie Mae and Freddie Mac. However, there are other conventional loans that are not conforming, like Jumbo loans, Bank Statement loans, and DSCR loans.
Conventional loans have a variety of terms, including 10, 15, 20, 25, and 30 years. The shorter your loan term, the lower your interest rate should be. But your monthly payment will be higher because you’re paying off the same loan amount in a shorter time.
Conventional loans are also available as fixed-rate, adjustable-rate, conforming, jumbo, and non-qualifying mortgages.
Generally, a score of 620 or higher is required for a conventional loan, but a higher score can mean a lower interest rate.
The minimum down payment for a conventional loan is usually 3%, but putting down more can improve your chances of getting approved and lower your monthly payments.
Lenders want to see that you have a steady income and can afford the monthly mortgage payments. They will typically look at your pay stubs, tax returns, and employment history.
This ratio compares your total monthly debt payments to your gross monthly income. A lower DTI shows lenders you have more room in your budget for a mortgage payment.
You might be able to snag a house with as little as 3% down payment, but this only applies if your income is at or below 80% of the average income in the area you want to buy (called the Area Median Income or AMI). If you don’t qualify for the 3% option, you’ll need at least 5% to put down.
If you’ve bought a house before, the minimum down payment is 5%, but FHA is still 3.5%
As of November 8th, 2023, you can buy a duplex, triplex, or fourplex to live in yourself with only a 5% down payment (previously 15%)!
If you’re buying a house that won’t be your primary residence, you’ll need at least a 10% down payment.
Investors looking to buy a rental property must make a minimum 20% down payment.
Are you buying a house (purchase) or refinancing your current mortgage? Is your interest rate fixed or adjustable (ARM)? The loan type can affect the PMI cost.
A higher credit score typically means a lower PMI premium.
The bigger your down payment, the lower the PMI cost (or you might not even need it!).
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