What are Conventional Loans?
Conventional loans are mortgage loans offered by non-government sponsored lenders. A conventional, or conforming, mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac. It may have either a fixed or adjustable rate.
Why should I use a Conventional Loan?
While many think that a 20% down payment is required for all conventional loans, many lenders now offer low down payment options. Conventional loans have been the normal way to purchase homes for many years and most family members still think that 20% down is the best option. With today’s market of lower interest rates it is usually best to keep the money spent on 20% down payments in other markets. If the return on investment is better in other markets than the interest being paid on the mortgage then it makes since to use lower down payments. Assurance Financial is proud to offer excellent rates and flexible financing options on Birmingham and Tuscaloosa conventional loans.
What can Conventional Loans be used for?
A Birmingham or Tuscaloosa conventional loan can be used for either purchasing or refinancing an existing mortgage. Investment and second home purchases are almost always financed with conventional loans. Condominiums are also much easier to obtain financing using conventional loans over other products like USDA, VA, and FHA. Refinancing conventional loans can help lower payments or change the term or interest rate associated with the current mortgage. Conventional cash out refinance loans are also great tools to obtain capital for debt consolidation or home repairs in the Birmingham or Tuscaloosa areas.
Conventional Loan Mortgage Insurance
A Birmingham or Tuscaloosa conventional loans offers better terms mortgage insurance when a buyer has great credit scores and has the extra money for a larger down payment. Conventional loans can have a down payment requirement as low as 3% in some cases. This type of loan is very popular among first time home buyers in Birmingham and Tuscaloosa Alabama.
Conventional Loan Requirements:
- Income Requirements: A debt ratio of 43% is generally required where 45% is allowed in some cases.
- Down Payment: A minimum down payment of 3% to 5% of the sales price is required.
- Credit Score: A minimum credit score of 620 is required for all conventional loans. If the down payment is less than 20% it could require a higher credit score to qualify.
- Property Requirements: All properties in Birmingham or Tuscaloosa using conventional loans must meet certain requirements but usually are much more lenient than other products like FHA.
Private Mortgage Insurance (PMI)
Private mortgage insurance (PMI) is used on all conventional loans where a down payment is less than 20% for all homes in Birmingham or Tuscaloosa. There are several ways to pay for this depending on the percent of down payment and the credit score. PMI is normally cheaper than the premiums used for FHA, USDA, and VA. The 4 basic ways to pay PMI are financing the amount into the loan balance, paying a monthly premium into the mortgage payment, raising the interest rate to offset the need for a monthly premium, or paying out of pocket a lump sum premium. The great thing about monthly PMI is that after the loan balance gets to 78% loan to value the premium will fall off the payment.
Working with a Qualified Lender
At Assurance Financial, we are committed to helping our clients with all their Birmingham and Tuscaloosa Alabama mortgage needs. If you are purchasing a home for the first time or looking to refinance your old loan into a conventional loan, we can help. Contact me, Ransom Kelly (205-624-0484), today for any questions you have on any Birmingham or Tuscaloosa conventional loans.