Conventional Loan Questions and Answers

Read these conventional loan questions and be informed.

Woman with questionsWhen we think of getting a mortgage, there are so many aspects to consider. These include the terms and conditions of your loan, the size, and cost of your monthly payments, and what the final interest rate on your loan will be. While these are all important questions to ask before you start shopping for your home loan, another question that's often brought up is whether a Conventional loan is right for you. This article will answer some common questions about Conventional home loans to help you decide if this type of loan would work well in your situation.

Our objective is to make this process a little simpler for you by introducing you to some of the most frequently asked questions that loan officers see on a daily basis.

Q. What is a conventional loan?

A. A conventional loan is a mortgage loan that is not guaranteed by the federal government. Although conventional loans may not offer the same benefits as FHA, VA, and USDA loans, they remain the most prevalent type of mortgage loan.

Q. Conventional loan down payment

A. A conventional loan down payment is the percentage of the purchase price that the borrower is required to pay in cash at closing. A conventional loan typically requires a down payment of 3% to 20%, depending on the borrower's credit score and financial history.

Conventional Loan: What is the Home Loan Down Payment

Q. Conventional 97 mortgage (3% down payment)

A. Yes, there are 3% down payment loans available. These loans can help you purchase a home with a smaller down payment than other loans. However, these loans typically have higher interest rates and may require private mortgage insurance (PMI).

If you fulfill the minimum credit score requirements and desire a down payment as low as 3 percent, a conventional mortgage may be the best option for you. The Conventional 97 program is for first time home buyers only. Follow the link below for more information.

Conventional 97 Loan Pros and Cons for 2022

Q. HomeReady Mortgage (3% down payment)

A HomeReady Mortgage is a low down payment mortgage option available to homebuyers across the United States. The program is designed to help creditworthy low- and moderate-income borrowers, with expanded eligibility for financing homes in designated low-income, minority, and disaster-impacted communities. HomeReady Mortgages offer flexible underwriting requirements and allow for a variety of down payment sources. The HomeReady mortgage does have income limits, but no first time homee buyer requirements.

HomeReady Mortgage: Fannie Mae's 3% Down Payment Loan

Q. What are the conventional loan gift limits?

A. There is no set limit on how much you can gift for a conventional loan, but the lender may have their own guidelines. It's always best to check with your lender before gifting any money.

Conventional loan gift funds: Use gift funds for the down payment

Q. Can I have a cosigner on a conventional loan?

  1. Yes, you can have a cosigner on a conventional loan.
  2. A cosigner can help you qualify for a conventional loan if you don't meet the income or credit requirements on your own.
  3. A cosigner is a great way to get a lower interest rate on your loan.
  4. Having a cosigner can help you get approved for a loan more quickly.

How to Qualify for a Mortgage With a Non-occupant Co-borrower

Q. What are the requirements  for a Chapter 7 bankruptcy

If you're considering purchasing a home after filing for Chapter 7 bankruptcy, there are a few things you'll need to know. First, you must wait at least four years from the date of your discharge before you can qualify for a conventional loan. Second, you'll need to have re-established good credit during that time. And third, you'll likely need to make a larger down payment than someone who hasn't filed for bankruptcy. The FHA waiting period is two years.

How Long After Chapter 7 Bankruptcy Can I Get a Mortgage?

Q. Conventional mortgage loan vs. FHA loan

Man staring at a wall with question marksA. There are a few key differences between conventional and FHA loans. With a conventional loan, you need a 20% down payment to get a mortgage without PMI. With an FHA loan, you can put as little as 3.5% down. Another big difference is that conventional loans require good credit, while FHA loans are available to borrowers with credit scores as low as 580.

FHA vs Conventional Loan: Learn the pros and cons

Q. Conventional loan requirements

  1. A conventional loan is a mortgage that is not guaranteed or insured by the government.
  2. To qualify for a conventional loan, you typically need a credit score of at least 620.
  3. You also need to have a down payment of at least 3% of the home's purchase price.
  4. Conventional loans typically have higher interest rates than government-backed loans.

Q. Conventional loan calculator

A conventional loan calculator is used to calculate the monthly payments on a conventional loan. This type of loan is typically available from banks and other financial institutions. The interest rate on a conventional loan is usually fixed, meaning that it will not change over the life of the loan. The monthly payment amount will be the same each month for the life of the loan.

Conventional Loan Mortgage Payment Calculator

Q. Conventional loan credit score

A conventional loan is a mortgage that is not backed by a government entity, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Conventional loans may have stricter credit score requirements than government-backed loans, and may require a larger down payment.

To get a conventional loan, you need to have a credit score of at least 620 to qualify for a conventional loan.

Q. Conventional mortgage rates

Conventional mortgage rates are the rates offered on conventional, or conforming, mortgages. These mortgages are those that are not backed by the government, such as FHA or VA loans. Conventional mortgage rates are typically lower than government-backed mortgage rates, but they may be higher if the borrower has a lower credit score.

Compare Current Mortgage Rates Today for Conventional Loans

Q. Do I have to pay per diem interest on my mortgage? What is it?

A. Yes, you have to pay per diem interest on your mortgage. It is the interest that accrues on your mortgage loan on a daily basis.
Per diem interest is the interest that accrues on a mortgage on a daily basis.

Calculate Your Mortgage Per Diem Interest With Our Calculator!

Q. Does Fannie Mae sell its repossessed homes?

A. Fannie Mae does sell its repossessed homes, and it offers a number of options for buyers. Potential buyers can search for homes online, and they can also work with a real estate agent to find a home that meets their needs. Fannie Mae also offers financing options for buyers, and it provides information on its website about the process of buying a repossessed home.

HomePath Properties: How to Buy a Homepath Foreclosure

Q. Conventional loan vs. VA

A. There are a few key differences between conventional and VA loans. A conventional loan typically requires a down payment of 3%-20%, while a VA loan does not. A conventional loan also has stricter credit requirements, while a VA loan may be available to borrowers with less-than-perfect credit. Finally, the interest rates on a VA loan are typically lower than those on a conventional loan.

Q. Conventional loan debt to income ratio (DTI)

A. The debt to income (DTI) ratio for a conventional loan is the amount of monthly debt payments divided by the monthly gross income. The maximum DTI ratio for a conventional loan is typically 45%. However, some lenders may allow a DTI ratio of up to 50% if the borrower has strong credit and adequate income.

Debt to Income Ratio for a Conventional Loan

Q. Conventional loan private mortgage insurance (PMI)

A. Private mortgage insurance (PMI) is a type of insurance that protects lenders from the risk of default on a mortgage loan. PMI is typically required when a borrower makes a down payment of less than 20 percent of the purchase price of a home. PMI is often included in the monthly mortgage payment, but there are other methods to pay for it.

What is Private Mortgage Insurance (PMI) and How It Works

Q. Conventional loan versus FHA

  1. A conventional loan is a mortgage that is not backed by the federal government, while an FHA loan is a mortgage that is backed by the federal government
  2. A conventional loan typically has a higher interest rate than an FHA loan.

  3. A conventional loan typically has a higher down payment requirement than an FHA loan (there are a few 3% down payment options).

  4. A conventional loan may be more difficult to qualify for than an FHA loan.

FHA vs Conventional Loan: Learn the pros and cons

Q. Conventional loan types

A. There are a few different types of conventional loans: fixed-rate, adjustable-rate, and balloon. A fixed-rate loan has the same interest rate for the entire term of the loan. An adjustable-rate loan starts with a lower interest rate that may increase or decrease over time, depending on the market. A balloon loan is a short-term loan that typically has a very low interest rate and is repaid in one lump sum at the end of the term.

Q. Conventional loan credit requirements

  1. In order to qualify for a conventional loan, you typically need a credit score of at least 620.
  2. You also need to have a stable job and a good credit history.
  3. Conventional loans are not as forgiving as government-backed loans, so you need to have a good credit score and a low debt-to-income ratio.
  4. You also need to have a down payment of at least 3 to 5% depending on the loan program.

Conventional Loan Requirements for 2022 and Mortgage Rates

Q. Conventional loan income requirements

  1. To qualify for a conventional loan, you must have a stable income and a good credit score.
  2. You may be able to get a conventional loan with a lower income if you have a high credit score.
  3. Lenders typically require that you have at least two years of employment history to qualify for a conventional loan.

Income Guidelines to Qualify for a Conventional Loan

Q. How much of my closing costs may the seller pay?

A. The amount of seller concessions paid by the home seller, dependent on the buyer’s down payment. The closing cost assistance can range from 3% to 9%.

Conventional Loan Seller Concessions: What You Need to Know

Q. Conventional loan down payment for investment property

  1. A conventional loan down payment for an investment property is typically 20%.
  2. There are some programs that offer a lower down payment, but it depends on the lender.
  3. You may be able to get a conventional loan with a down payment of 15% to 25%, but it depends on the property and the lender.
  4. You should speak with a lender to find out what the down payment requirements are for a conventional loan.

Investment Property Mortgage: Get an investment property loan

Q. Do I qualify for a loan?

A. Simply make a pre-approval mortgage application. The mortgage lender will analyze your debt to income ratio, review your credit report and tell you your loan options.

Q. Earnest money, what is it?

A. When buying a house, there are a lot of things to consider. One important factor is earnest money. Earnest money is a deposit made by the buyer to show that they are serious about buying the house. The earnest money is held in escrow until the closing of the house. If the deal falls through, the earnest money is returned to the buyer. If the deal goes through, the earnest money is applied to the purchase price of the home.

What Is an Earnest Money Deposit for a Home Purchase?

Q. How do I average my wife's and my credit scores?

A. To average your wife's and your credit scores, you'll need to first obtain each of your credit reports from the three major credit bureaus. Once you have all three reports, you'll need to compare the scores and take the average. Keep in mind that your wife's and your credit scores may not be identical, so you may not end up with an exact average.

Fannie Mae Credit Score Average and Calculator

Q. How do I calculate the loan to value (LTV) on my loan?

A. To calculate the loan to value on your loan, divide the amount of your loan by the current market value of the property.

How to Calculate the Loan-to-Value Ratio (LTV) on a Loan

Q. Maximum Loan to Value (LTV) for a Cash-Out Refinance Mortgage

A. A cash-out refinance mortgage is a loan that allows homeowners to access equity in their home to obtain cash. The maximum loan to value (LTV) for a cash-out refinance mortgage is 80%. This means that the loan amount cannot exceed 80% of the appraised value of the home. Homeowners who have a loan to value (LTV) ratio above 80% will not be able to obtain a cash-out refinance mortgage. Fannie Mae guidelines

Maximum Loan to Value (LTV) for a Cash-Out Refinance Mortgage

Q. How fast can I pay off my mortgage with an extra $100 every month?

A. If you're able to pay an extra $100 each month, you could potentially pay off your mortgage faster. Of course, the amount of time that it would take to pay off your mortgage will depend on the size of your mortgage and the interest rate. However, making regular, additional payments can help reduce the overall amount of interest that you'll pay on your loan, and may help you pay off your mortgage sooner than you otherwise would have.

Mortgage Amortization Calculator with Extra Payment Option

Q. How much interest do I save with an over payment each month?

A. If you make an overpayment on your mortgage each month, you will save money on interest. The amount of interest you save will depend on the amount of the overpayment and the interest rate on your mortgage. For example, if you have a mortgage with an interest rate of 4% and you make an overpayment of $100 each month, you will save $4 in interest each month.

Calculate the mortgage payoff with our extra payments calculator

Q. How much can I borrow?

The amount you can borrow depends on many factors, including your credit score, income, and debts.

Estimate Your Mortgage With Our Home Affordability Calculator

Q. How do I get a second home?

A. There are a few ways to get a second home. You could purchase another property, take out a second mortgage on your current home, or get a home equity loan. You could also look into rent-to-own or lease-to-own options if you're not ready to commit to buying another property outright. Whatever route you decide to take, be sure to do your research and consult with a financial advisor to ensure that you can afford the second home and that it makes financial sense for your situation.

How to Get a Home Mortgage on a Second Home With a Low Rate

Q. Is a conforming loan a conventional loan?

A. A conforming loan is a type of conventional loan that meets certain guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that purchase mortgages from lenders. Conforming loans are attractive to lenders because they typically have lower interest rates and less risk than non-conforming loans.

Q. I need a low cost refinance program.

A. There are a number of low cost refinance programs available to help borrowers lower their monthly payments. Some programs are available through the government, while others are offered by private lenders. Borrowers should compare the terms and conditions of each program to find the one that best fits their needs.

Learn About the New Fannie Mae Refinow Refinance Mortgage

Q. Is there a maximum loan amount with conventional loans?

A. The max lending amount is determined yearly by the Federal Housing Finance Agency.

Conforming loan limit for 2022: What you need to know

Q. What are mortgage points?

A. Mortgage points are a type of fee charged by lenders in order to make a profit from the loan. One point equals one percent of the loan amount. For example, if you're taking out a $100,000 loan, one point would cost you $1,000. Mortgage points are usually paid at closing, and can be paid upfront or over time.

  1. Mortgage points are a form of pre-paid interest.
  2. Mortgage points are a way to reduce the interest rate on a mortgage.

Mortgage Discount Points Can Lower Your Interest Rate

Q. What is a mortgage escrow?

Escrow graphicA. A mortgage escrow is an account that is set up by a lender to pay for property taxes and insurance on behalf of the borrower. This account is typically set up when a borrower takes out a loan to purchase a home. The lender will hold money in the escrow account each month along with the borrower's mortgage payment. When the property taxes and insurance bills come due, the lender will use the money in the escrow account to pay them.

What is a Mortgage Escrow Account? How Does the Escrow Work?

Q. What are the Pros and Cons of FHA and conventional loans?

FHA loans Pros:

  • Lower down payment requirements than conventional loans
  • More forgiving of credit history issues
  • May offer more competitive interest rates

Cons:

  • Mortgage insurance premiums are typically higher than for conventional loans

Conventional loans:

Pros:

  • Mortgage insurance premiums can go away with 78 to 80% LTV
  • Available in all areas

Cons:

  • Higher down payment requirements than FHA loans
  • May not be as forgiving of credit history issues

FHA vs Conventional Loan: Learn the pros and cons

Q. What is a 2/1 buydown?

A. A 2/1 buydown is a financing technique to prepay the interest for the first two years. Using a 2/1 buydown reduces the mortgage payment for 24 months.

How to Lower Your Interest Rate With a 2-1 Buydown Mortgage

Q. What is a 5/1 arm?

A. A 5 1 arm is a type of mortgage loan in which the borrower receives a five-year fixed rate and then a one-year ARM. This type of loan is beneficial to borrowers who plan to stay in their home for less than six years.

How 5-1 Adjustable-Rate Mortgages Work? 5/1 Arm Loan Rates

Q. What is automated underwriting?

A. Automated underwriting is a process by which a lender uses a computer to evaluate an applicant's credit risk and eligibility for a loan. The process relies on data from the credit bureau, as well as other sources, to make a decision. This can speed up the process of getting a loan approved, and may be available for certain types of loans, such as mortgages.

What is an Automated Underwriting System for a Mortgage?

Q. What is a jumbo loan?

A. A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac. Jumbo loans are typically used to finance luxury homes or high-cost properties.

Jumbo Loan Requirements: Learn About Jumbo Mortgages 2022

Q. What is my mortgage payment?

A. Your mortgage payment is the amount of money you owe each month on your home loan. It is typically made up of principal and interest, and may also include taxes and insurance.

Conventional Loan Mortgage Payment Calculator

Q. What is the Homestyle renovation loan?

A. The Homestyle renovation loan is a government-backed loan program that helps homeowners finance the renovation of their homes. The program is available to borrowers with good credit and offers competitive interest rates. It also allows borrowers to finance the cost of both the renovation and the purchase of the home.

Homestyle Renovation Loan: See How the Homestyle Loan Works

Q. What is a loan estimate?

A. A loan estimate is a document that provides important details about a mortgage loan. It includes information about the interest rate, monthly payments, and closing costs. This document is provided by the lender to the borrower before they commit to the loan.

Q. Who offers conventional loans?

A. See below

Q. Why Did My Mortgage Escrow Increase?

If you're wondering why your mortgage escrow increased, this page has the answers. Find out why and what you can do to lower your payments.

 Why Did My Mortgage Escrow Increase?

Conclusion

In conclusion, there are many questions that arise when considering a conventional loan. It is important to have a clear understanding of the terms and conditions of the loan before making a decision. By asking the right questions, you can make an informed choice about whether a conventional loan is the best mortgage for you.