The most widely used home loan, whether purchasing or refinancing a property is the conventional home loan. This article will provide a guide to some of the most common questions that consumers have about obtaining a home loan, including down payment requirements, credit score requirements, home loan limits and other facts.
Down Payment Requirement
If you are purchasing a home to live in as your primary home, the Conventional loan requires a 3% minimum down payment if you are a first time home buyer or qualify for the Fannie Mae Home Ready program (see our article on this program for guidelines). Otherwise the minimum down payment is 5% for the purchase of a primary home. For a secondary or vacation home, the minimum down payment increases to 10%. And for an investment property, the down payment minimum increases to 15%.
In addition, if you are using the program to refinance your existing home loan, you can take out a rate-term refinance (with no cash out), up to 95% of the value of a primary home or 80% of the value of a home, if you are completing a cash out refinance.
Credit Score Requirements
On a conventional loan, the minimum credit score to obtain a loan is 620. However, the interest rate you receive will be dependent on your credit score, meaning that someone with a 760 credit score, will receive a better interest rate that someone with a 620 credit score. In general, your interest rate will vary slight, based on every 20 point increment between 620 and 760.
Home Loan Limits
The current conventional loan limit is $424,100 in Maricopa, Pinal and Pima Counties in Arizona. Meaning that this the maximum loan size you can obtain using a Conventional loan for either a purchase loan or refinance of your home.
Mortgage Insurance Requirements
On a conventional loan, if you make less than a 20% down payment on a purchase or if you are refinancing and have less than 20% equity, mortgage insurance will generally be required. However, there are options to not make a monthly mortgage insurance payment, if you do not have 20% equity, by using lender paid mortgage insurance.
In addition, the cost of mortgage insurance will vary based on your down payment, as a 10% down payment will have less expensive mortgage insurance than a 5% down payment and a 15% down payment will have less expensive mortgage insurance than a 10% down payment.
Waiting Periods After Foreclosure, Short Sale or Bankruptcy
To obtain a conventional loan, you must wait four years after the completion of a short sale and seven years after the completion of a foreclosure to obtain a new conventional loan. In addition, there is also a four year waiting period after the discharge of a chapter 7 bankruptcy to obtain a new home loan.
Debt To Income Ratios
To qualify for a conventional loan, in general your debt to income ratio should not exceed 50%, including all monthly payments on your credit report. This means that if you make $60,000 a year or $5,000 a month, all of your monthly debt payments, including a potential mortgage, cannot exceed $2,500.
These are some of the basics you need to know about the conventional home loan program, but of course everyone’s individual situation is unique and it is always best to speak with a licensed lender, such as Strategic Mortgage and explore all available options, for your specific situation.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: email@example.com or online at www.strategicmtgaz.com
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