If you’re looking to buy a home in Orem or elsewhere in northern Utah, a conventional mortgage could be a good financing option. But you need more information to decide if this is the right type of home loan for you – and we have the lowdown on conventional loans.
Below, you’ll find answers to common questions about conventional mortgages along with advice on how to find the best loan for your Utah home purchase.
What is a Conventional Mortgage?
When used to describe a mortgage, the term “conventional” simply means that the loan isn’t offered or insured by a government agency like the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA). Instead, conventional loans come from banks, credit unions and other private lenders.
Two types of conventional loans are available for Utah home buyers:
- Conforming loans, which follow the guidelines of Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) that provide liquidity and stability to the mortgage market
- Nonconforming loans, or jumbo mortgages, which exceed the borrowing limits set by the GSEs and are designed for those who want to purchase properties at higher price points
What are the Eligibility Requirements for Conventional Mortgages?
The specific requirements for a conventional loan vary by lender, but generally speaking, Utah home buyers need the following to qualify for this type of financing:
- A credit score of at least 620 and a strong credit history
- A debt-to-income ratio, or the percentage of income that goes toward debts, that is no higher than 50 percent
- A down payment of at least three percent of the property’s purchase price
In regard to that last requirement, borrowers need to be aware that putting only three percent down isn’t always an option. Here are some points to consider:
- Borrowers who want adjustable-rate mortgages typically need to put down at least five percent
- Lenders often require a down payment of 15 percent for the purchase of a multi-family home
- With a nonconforming home loan, the minimum down payment may be 20 percent or more
Should You Get a Conventional Mortgage?
Conventional loans are the most popular among Utah home buyers. However, just because you may qualify for this form of financing doesn’t make it the best fit for your home purchase.
You really need to look at every financing option, as a FHA loan, VA loan or USDA loan might be ideal. But rather than spending time on research and crunching the numbers yourself, why not leave the matter to a mortgage professional? The Intercap Lending team would be happy to help you compare all of the available lending programs, and we can provide you with advice on which route to take with home financing.