Beginner’s Guide to Conventional Mortgages

Conventional mortgages can be a smart option for many Utah homebuyers. This type of financing isn’t guaranteed by a government agency, but in most cases conforms to the guidelines set by the federally backed mortgage institutions known as Fannie Mae and Freddie Mac.

Below, the Intercap Lending team explains the basics on conventional home loans and how to decide on the best way to finance your home purchase.

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Eligibility Requirements

As a general rule, conventional mortgages have stricter eligibility requirements than loans insured by the federal government. When you apply for financing, lenders will consider the following:

  • Your credit score, which typically must be at least 620 to qualify
  • Your employment history, as you must have a stable flow of income
  • Your debt-to-income ratio, or the percentage of what you earn that goes to pay off debts – and for conventional home loans, the maximum DTI is usually between 40 and 50 percent

Down Payment Requirements

First-time Utah homebuyers may be able to get a conventional mortgage with as little as 3 percent down. However, your required down payment may differ depending on your specific circumstances. Consider the following:

  • If you want an adjustable-rate mortgage, you may need to put down at least 5 percent.
  • If you plan to invest in a multi-family home, your lender may require a down payment of 15 percent.
  • If you take out a jumbo loan or other conventional mortgage that doesn’t meet Fannie Mae’s or Freddie Mac’s guidelines, your minimum down payment could be 20 percent or more.

Conventional Mortgage Limits

The type of conventional loan you choose will dictate the maximum amount you can borrow.

Conforming mortgages

Loans that meet the requirements of Fannie Mae or Freddie Mac are limited to an amount set by the Federal Housing Finance Agency. In most Utah counties, the current maximum is $548,250. That said, in Salt Lake County and Toole County, the limit is $600,300. Other areas, including the counties of Davis, Morgan and Weber, are set at $646,300 – and for a conforming loan in Wasatch or Summit County, the maximum is $817,650.

Nonconforming mortgages

For conventional home loans that surpass the limits set by the FHA or don’t otherwise meet Fannie Mae’s or Freddie Mac’s standards, lenders are free to decide on the maximum amount they’re willing to finance. The cap largely depends upon the borrower’s credit history, down payment and financial situation, but most nonconforming mortgages involve amounts no greater than $2 million.

Should You Consider a Conventional Mortgage?

Conventional home loans often have less paperwork than government-insured mortgages, and obtaining one is also less time-consuming. A vast range of options are available, including fixed-rate and adjustable-rate mortgages with varying term lengths.

However, just because you may qualify for a conventional mortgage doesn’t mean this form of financing is your best bet. You might be better off taking out a VA loan, FHA loan or USDA loan. For an easy time comparing the many different lending programs, turn to the professional team at Intercap Lending.

Based in northern Utah, Intercap Lending has been helping borrowers throughout the state for decades. We’re always happy to answer questions – for a free, no-obligation consultation and advice on conventional mortgages in Utah, contact our office in Orem today.