When you’re looking to buy a home, you have a plethora of mortgage options from which to choose, offering various eligibility criteria, interest rates, fees and mortgage amounts. Understanding the different options at your fingertips helps you walk into the bank more confidently because you have a better idea of which option is best for you. A conventional mortgage refers to a mortgage that isn’t backed by a government program, such as the Federal Housing Administration, the Department of Veteran’s Affairs or the Department of Agriculture.
When you apply for a conventional mortgage, you will need to prove that your income is sufficient to make the monthly payments. For example, your lender may require you to show 30 days' worth of pay stubs to prove you’re still employed, two years of tax returns including W-2s or other income statements and quarterly account statements to verify your assets, such as checking and savings accounts.
Down Payment Needed
You’ll need a down payment for a conventional mortgage. Depending on your credit, you might be able to put down as little as 3 percent, or you may be required to put down up to 25 percent to be approved for a conventional loan. If you receive money from family or friends to help with the down payment, the bank may require you to get letters from them stating that the money is a gift and not a loan. That way, the bank knows that you haven’t taken on additional debt that you’ll need to repay in addition to the mortgage for which you’re applying.
Advantages of Conventional Mortgages
Conventional mortgages have several advantages if you qualify. First, the loans are generally processed more quickly than government mortgages because you’re applying straight to the lender, and you don’t need approval from any government programs. In addition, you won’t need to pay for the mortgage insurance premiums that are required for certain government programs. However, if you don’t put at least 20 percent down, you’ll usually need to pay for private mortgage insurance.
Shop for Low Fees
Conventional mortgages aren’t restricted by government regulations, which means that you can find a wide range of fees depending on the banks that you visit. Each bank may view your credit risk differently depending on your credit score, income and assets, so it pays to shop around at several banks to make sure you’re getting the lowest interest rate and mortgage fees. Over the life of the mortgage, even a small difference in interest rates can make a big difference.
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