Getting a mortgage in Atlanta
Real estate investing is one of the most tried and true ways to build wealth. In this article, we talk about how to buy your first rental property.
How to buy your first investment property
Real estate investing is one of the most tried and true ways to build wealth. In this article, we talk about how to buy your first rental property.
How to Save For a Home Down Payment
It’s no secret that buying a home is a huge financial commitment. A down payment alone can be tens of thousands of dollars, and that’s not even counting the closing costs, monthly mortgage payments, and other associated expenses. With the average price of a home hitting $405,000 in 2022, even a 3% down payment for a first-time conventional loan means you would need to cough up $12,150 just for the down payment alone. Assuming 2% in closing costs, you would need to have roughly $20,000 to buy a home! Here are some down payment percentages you should keep in mind: Lowest down payment loans: FHA – 3.5% Down Conventional Loan (For first-time home buyers) – 3% Down Conventional Loan (for repeat buyers) – 5% Down No Down Payment Programs: VA loan – 0% Down USDA Loan – 0% Down Don’t qualify for a VA or USDA Loan? It’s OK, don’t let that scare you away from homeownership – there are plenty of ways to save up for a down payment. Here are four tips to get you started: Find out how much you qualify for – Get your eligibility here Track your expenses and set up a budget Setting a budget is the first step to saving for a down payment on a house. There are numerous ways to set a budget, but the most important thing is to be realistic about your income and expenses. Begin by tracking your spending for one month to get an accurate picture of where your money goes. Then, figure out how much you can realistically save each month. Once you have an idea of your monthly savings goal, you can start looking for ways to cut expenses so that you can reach your goal more quickly. For example, you may want to give up dining out or limit your entertainment budget. By setting a budget and making sacrifices, you can save up for a down payment on the home of your dreams. Once your budget is set, make sure you are automatically transferring a fixed percentage of your income into savings. Once you have a solid savings plan in place, you can start looking for ways to boost your down payment fund. One option is to get a side hustle or take on some freelance work. You can also look for creative ways to cut costs so that you can redirect more money towards your down payment goal. Set up a dedicated savings account Setting up a dedicated savings account specifically for your down payment fund is one of the best things you can do. Then, you can create a budget and make regular deposits into the account. To stay motivated, it can help to set up a savings plan with specific milestones. For example, you may want to aim to save $20,000 in two years. Break up your goal into amounts you can handle. For instance, $20,000 may seem like a big amount of money but it’s the same as $833 every single month! Automate your finances One of the best ways to save money is to automate your finances so that you’re less likely to spend it. When it comes to saving for a down payment, you can automate your savings transfers from your checking account into your dedicated down payment savings account. This way, you’ll never even see the money and it will start to add up. Finally, be sure to take advantage of any employer matching programs or other incentives that could help you reach your goal even faster. By automating your finances, you can make the process of saving for a down payment much simpler and less stressful. Find out how much you qualify for – Get your eligibility here Get a side hustle Be honest with yourself – if your full-time income is not getting you to that down payment savings goal as quickly as you’d like, then picking up a side hustle is the way to go. A side hustle is a small business or other activity that generates extra income. Side hustles are a great way to make some extra money, and there are plenty of options to suit every interest and skill set. For those who love interacting with people, dog walking or pet sitting can be a great way to earn some extra cash. If you’re a talented baker, starting a small home-based business making and selling cakes and other baked goods can be a delicious way to make some extra money. Or, for those who enjoy being outdoors, starting a gardening or landscaping business can be a great way to make use of your green thumb. Not so much on the creative side? Consider driving Uber or Lyft for a few months. We’ve had many clients who went from just having $1,000 in savings for a down payment to more than $15,000 in 10 months driving on the side. Whatever your interests may be, there’s sure to be a side hustle that’s perfect for you. This extra income can be used to save for a down payment, as well as to cover other costs associated with homeownership. Having a side hustle can be a great way to speed up the process of buying a home, and it can also provide some financial security in case of an unexpected expense.
Bank statement loan – A strategic program for self-employed borrowers
Whether you are buying or refinancing a home, one of the main requirements to qualify for a mortgage loan is documentation of income. For a lot of prospective borrowers especially those who are self-employed, entrepreneurs or freelancers, this sometimes poses a problem as they may not necessarily show all income on their tax returns and thus, hold them back from accomplishing homeownership. How the bank statement loan is a solution Unlike the other loan options, this special program uses bank statements to calculate a borrower’s income. This is an alternative documentation loan option rather than relying on tax returns and W-2s in the application procedure. Specifically, these loans are for self-employed borrowers who typically have substantial tax write-offs that make it challenging to demonstrate the necessary income to prove their ability to repay the loan. Thanks to this program, the lender utilizes either personal or business bank statements to qualify borrowers. Qualifying for a bank statement loan Even though the qualifications are similar to those of a regular mortgage, borrowers must understand there is additional criteria to be met when qualifying for this loan. Some of the major requirements are: The borrower must be self employed for at least 2 years 12 or 24 months of personal or business bank statements Borrowers can own as little as 50% of the business for business bank statements and 25% for personal bank statements 640 minimum credit score Minimum 10% down payment for borrowers with 660 or better credit score. if the borrower’s FICO is 640-659, the minimum down payment is 15%. What are the differences between a bank statement loan and a traditional mortgage? Bank Statement Loans: These loans are built for people who do not have W2 jobs such as business owners, realtors, consultants, restaurant owners, and gig economy workers.They allow borrowers to use bank statements as the form of proof that they are able to pay back the loan amount. Traditional mortgages (Conventional, FHA loan, VA, USDA) Government backed loans or conventional mortgages are the most used ways of buying a home. They suit most borrowers especially those who are employees of companies or rely on retirement income. Self-employed borrowers can also apply for these loans but they do require a 2 year tax history in order to qualify. Advantages of the bank statement loan In summary, these are the advantages of a bank statement loan: The lender does not need to look at your tax returns or tax transcripts. Your income statements are made up of regular monthly income deposits. The lender can look at 12 or 24-month bank statements. If you own a business, you can show 24 months of business statements and a P&L statement for the same period. A P&L statement (profit and loss statement) is prepared by a Certified Public Accountant. Not all business owners will be required to present one. You can get a bank statement home loan for as little as 10 percent down. No PMI required even with a down payment under 20% You can do a cash-out refinance loan of up to 85 percent of the value of your property. You can borrow up to $5 million. Typically, bank statement lenders will accept a debt to income ratio of a maximum 55 percent. You have other term options not offered with regular mortgages such as interest only, and even 40 year loans. Difference between a bank statement loan and a conventional mortgage For most people, conventional loans are the main option for mortgage financing. However, these do require full credit, income and asset documentation but regarding the income, the lender must obtain a verification of income, W2s, pay stubs or 2 year tax returns for self employed borrowers. This is where the bank statement program shines, as a business-owner borrower does not need to provide for tax returns or 1099s to proof income. The lender can calculate the borrower’s income through the deposits made in the bank. Is a bank statement loan the right option for you? If you are a self employed borrower, or contractor and you do not show sufficient net income on your tax returns to qualify for a regular mortgage loan, the bank statement program may be the right option for you. However, do understand that these loans have a drawback and that is the interest rate. Because these loans are not insured by a government agency such as the other mortgage options, lenders are taking on more risk. Therefore, the borrower will have a higher rate than those offered with a conventional mortgage or FHA. The winning strategy here is that if you know you have an income issue due to your tax returns or if you owe back taxes to the IRS or have a debt with the IRS, then this program may be ideal for you. At Andes Mortgage LLC., we have multiple relationships with lenders who offer the bank statement programs with excellent terms. We strive in helping self employed and entrepreneur borrowers achieve their goal of homeownership and have made this program a priority in our portfolio of loans. If you want to check how much home you can afford and whether or not this program is right for your personal situation, click this link to get started. Get Started
Using your 401(k) to buy a home
For many prospective home buyers, getting funds for a down payment and closing costs can sometimes be a difficult task. In fact, most people would say that their biggest barrier to purchasing a home is the ability to bring tens of thousands of dollars to the table. This can lead to buyers accessing a retirement account as a way to provide funds for buying and While this is allowed, there are some factors and drawbacks that you might want to consider. The case for using your 401(k) Even if you’re fine with the 10% early withdrawal penalty, you’ll still be paying a price in the long run by decreasing your savings. Likewise, you may decide that you are better off waiting to buy a home next year but this can also put you in a worse position as the prices of homes normally increase year over year. From 2020 to 2021, the average price of a home in the country appreciated at a whopping 21%! You don’t necessarily have to liquidate your 401k but instead, you can take out a loan against it. This essentially the same as taking a loan against yourself which you can pay it back, with interest. By taking a loan against your 401k, you avoid paying the 10% early withdrawal tax penalty as well the money you draw is not subject to income tax. In addition, a 401k loan does not count against your debt-to-income ratio and it’s also not an added debt that goes toward your credit profile. This means it won’t decrease your scores and won’t affect your odds of qualifying as well. So, can you use your 401k to buy a home? The answer is yes, but there are a couple of caveats. First, you need to know that if you withdraw money from your 401k early, you will pay a penalty and the amount of the penalty depends on several factors such as how old you are and how old your employer is Withdrawing money from a 401k The alternative to taking a loan against your 401(k) is to take a direct withdrawal from your account. This is not the best solution and this is why: Early withdrawals are classified as hardship withdrawals. The IRS considers any emergency removal of funds from a 401(k) to cover “an immediate and heavy financial need” as a hardship withdrawal. Normally, the purchase of a home using your 401(k) does not count as a hardship withdrawal and you will likely incur the 10% early withdrawal penalty. However, sometimes there are exemptions in place for specific circumstances, including home buying expenses for a principal residence or if this is your first time buying a home. Speak with your 401k manager in order to get the best idea about your personal situation. Other alternatives to using a 401(k) Family gift It is totally admissible and legal for a family member such as parents or other relatives to give you the money for the purchase of a home. This is what is called a gift and it does not count against your debt to income ratio. Sell items to raise funds You can save up funds by selling items that you don’t need anymore. Use the money to put towards your home purchase and this will not affect your debt-to-income ratio at all. Make sure that you keep receipts and bills of sale especially if you sell a large ticket item such as an expensive electronic or a vehicle. You can also sell items you have around the house in order to get funds for buying a home. These are called your “personal assets” and they will not affect your debt-to-income ratio either. Maximize IRA contributions If you have an IRA account, it is possible to withdraw up to $10,000 without being subject to the early withdrawal penalty. This is assuming that you have not reached age 59½ yet and this can be a great way to get funds for buying a home. However, that $10,000 is still subject to state and federal income taxes. If your withdrawal exceeds $10,000, then the 10% penalty is applied to the additional distribution. Consider a low down payment program instead If you really want to buy a house but don’t have enough funds for the down payment, then consider applying for an FHA loan or a low down payment conventional mortgage. The minimum credit score requirement for FHA is 580 and they allow for 3.5% down payment. At the same time, conventional loans only require a 3% down payment if you have great credit scores and a low debt to income ratio. There are a lot of options but the wisest step you can take is to first consult with a mortgage consultant before anything else. At Andes Mortgage LLC., we set up a personalized consultation to help you navigate the loan process and formulate a strategy for your home loan. Get started with one of our experts today.
Three things homebuyers must do before calling a realtor
Before talking to a Realtor and start looking for homes whether online or by driving by open houses, there are three very important things that anyone should do beforehand. Check credit scores and report for errors The first is checking their credit score to see if there are any potential problems before applying for a mortgage. If there are, it could stop them from getting the loan even though they have the income that would qualify them. Credit scores range between 300-850 with higher being better. The good news is that credit scores are easy to check and it’s much better to find out if there is a potential problem before applying for a mortgage. The three major credit reporting agencies in the United States are Experian, TransUnion and Equifax. Homebuyers should visit them all and look at their reports to see if everything is accurate or if there are any issues. When doing this, they should also check and make sure that if their scores differ between agencies, then they should see which one is the closest to what it really is. “It’s very important for people to look at them because it will tell you where you stand,” says Joe Parsons, who works with Fair Isaac Corporation, the company that created FICO scores. That way, any issues would have to be handled before they even started looking for homes. This is also important because even if their scores are low or borderline, it doesn’t mean that they can’t get a mortgage loan; they just might need to provide more documentation in order to do so. You can check out your credit report once a year at www.freecreditreport.com. Even though this website won’t show you your credit scores, it will show you your full credit report with all the tradelines. Get a preapproval form a mortgage professional Once you know about your credit you should contact a mortgage professional and work on a pre-approval. The process for this is fairly straightforward. You can make an appointment with a mortgage lender who will help you through the process and that way, figure out if you qualify for a mortgage, what kind of interest rate they’ll be charged and the type of loan that will best fit your financial situation. This is one of the most important steps in buying a home because it tell you what you can afford, whether you should consider another type of financing and it also gives you an advantage against other people who are looking for homes. But don’t just pick any mortgage professional as they are not all created equal. Do your research so that you can feel confident that the person you pick is knowledgeable and will take care of you as if they were buying their own home. Inform your employer that you are buying a home so This is not because you want to flaunt to your co-workers that you are buying a home! This is because employers play a vital part in your ability to getting a mortgage as the lender will do a verification of employment. This is the process when a lender submits certain forms or reaches out to your HR department or a supervisor who can verify that you in fact, are an employee of the company. When an employer delays or does not respond to a lender, it can delay your closing. Looking to start the home preapproval process? At Andes Mortgage LLC., we make it easy to get your loan process started. Whether you are looking to purchase or refinance a home, our knowledgeable team will be able to guide you through the tricky waters of mortgage financing. Get started today by clicking this link and set up an appointment with us!
Why getting a mortgage preapproval is so important?
Getting pre-approved for a mortgage before you start your home search is the most important step. It gives you an idea of how big of a house you can afford, what kind of mortgage program works best for your needs and how much money you will need to buy the house. In this article, we’ll discuss why getting pre-approved is of the essence even before you start looking for homes online. What is a mortgage preapproval? Being pre-approved for a mortgage means that a lender has reviewed your financial situation and confirmed your ability to take on mortgage payments. This means that you have submitted documentation to the lender such as W2s, tax returns, pay stubs, bank statements, etc., and they have reviewed them to make a determination on your qualification. With a mortgage pre-approval, your lender estimates how much you can afford to borrow, what is the best loan options for you, what your interest rate could be, estimate your monthly payments and your estimated cash outlay for your purchase. You and your and your real estate agent can use this information to focus on the homes that you can afford. A preapproval also shows home sellers that you are a serious buyer and that you are able to finance your purchase, which will make them more likely to accept your offer on their house. What is the difference between a prequalification and a mortgage preapproval? You might have heard the term “pre-qualification” before. Even though they sound alike, the biggest difference is that a pre-qualification means that a mortgage lender collects some basic financial information based on your verbal indication. No documentation is required for a pre-qualification except for a credit pull. With a pre-qualification, a lender can help you understand how much house you can afford and give you some general information. However, you should not put your faith on a pre-qualification as means that you will 100% get approved for the loan. More often than you think, your documentation will reveal certain things to the lender that may not be favorable to getting you approved once your loan is in the underwriting stages of the process. In addition, home sellers may not be inclined on accepting your offer with just a simple pre-qualification as they would also be unsure if you would be able to qualify at the end of the day once you submit your documentation. The bottom line Getting pre-approved for a mortgage is vital to purchasing a home. You need to have the underwriting stage completed before you start your search for homes so that you can have an idea of how much house you can afford and what kind of loan programs work best for your needs. Having this information beforehand not only helps you narrow down the kinds of homes that you can afford but also, makes you a much smarter homebuyer. It also increases the chances of you getting your offer accepted by potential home sellers and makes your loan process a lot simpler. At Andes Mortgage, LLC., we work with you from the very beginning of the process to not only help you understand the steps of home buying but also, by helping you qualify for the best mortgage based on your unique situation. Getting pre-approved is extremely easy with us and you can start the process by clicking here.
A Home Guide to USDA Loans
Table of Contents Add a header to begin generating the table of contents What is an USDA loan? The USDA loan is a mortgage offered by the United States Department of Agriculture to people who live in rural areas. USDA loans are often [but not always] available in rural area/rural communities that other lenders consider too isolated or too high risk for their own programs. They can be used to purchase homes, build new ones, or refinance an existing USDA loan. They can be used for both primary homes only, but they cannot be used to buy land or for any commercial purpose. USDA loans help create affordable housing and community development in rural communities and small towns that the private sector has overlooked because of their remote location. Eligibility is based on whether the area is considered rural or not, not on whether you qualify. Borrowers may borrow up to 100% of the purchase price of a home. USDA loan eligibility Loans through the USDA Rural Development program come with a lot of benefits, eligibility is only available to specific borrowers and in specific regions. These are some of the main requirements that you should know: Loan must be used for a primary residence only Property must be in a rural area, defined as having fewer than 35,000 residents Borrowers must meet down payment requirements (down payments may be zero for some programs) Borrowers don’t have to have a minimum credit score to qualify, you must be able to demonstrate you can manage debt Borrowers must not have incomes that exceed pre-set limits Borrowers must have a debt-to-income ratio of 41% or lower 640 minimum credit score based on the borrower’s median credit score Types of USDA loans USDA Guaranteed loans These loans are provided under Section 502 of the Housing Act of 1949 and are issued by USDA-approved lenders and guaranteed by the agency in case borrowers default. This is perhaps the most common USDA loan you’ll find most lenders offer. In order to qualify, a borrower’s income can’t exceed 115% of the median income for their area. Direct issue loans These loans also are provided under Section 502 of the Housing Act of 1949. They are issued directly by the USDA, rather than through intermediary lenders. To qualify for a USDA loan, a borrower’s income can’t exceed 50% to 80% of the median income in their area. Home improvement loans Home improvement loans are issued under Section 504 of the Housing Act. These are a combination of loans and grants that can provide borrowers with up to $27,500 ($20,000 as a loan; $7,500 in grants). The loan portion is repaid over 20 years at 1% interest. To qualify, applicants must have a household income below 50% of the median income for their area. The USDA loan mortgage insurance USDA requires a one-time mortgage insurance premium of 1% of the base loan at closing (this can be rolled into the mortgage) and a yearly mortgage insurance of 0.35% paid monthly through your monthly payments. This mortgage insurance is required for the life of the loan, regardless if the borrower puts a down payment or not. Applying for an USDA loan The process for securing a USDA loan is very similar to any other mortgage option. However, there are a few extra steps required for getting a USDA loan to confirm eligibility. If you are looking to apply for a USDA loan, these are some steps you can take to get ahead of the curve: Check if the property is in a qualifiable area The process for securing a USDA loan is very similar to any other mortgage option. However, there are a few extra steps required for getting a USDA loan to confirm eligibility. If you are looking to apply for a USDA loan, these are some steps you can take to get ahead of the curve. Check your income eligibility Your income will play a role in determining whether or not you qualify for a loan. Keep in mind that the USDA counts the total household income, regardless if other people in your household will be on the loan or not. You can get an idea about income eligibility based on your area by clicking here Pick a mortgage broker or lender that works with USDA loans The USDA does not originate loans directly therefore, borrowers have to go to a lender or a broker that does. As mortgage brokers experienced in USDA home loans, Andes Mortgage, LLC., works with different lenders that may be able to suit your needs. We invite you to chat with us to obtain all the information you need and ensure that you can qualify for this financing option. Click here to check your USDA eligibility and talk to us. USDA loan vs a conventional loan One of the biggest benefits of the USDA home loans is the 0% down payment feature, whereas Conventional mortgages require at least a 3% down. Also, USDA in some cases, offer below-market rates compared to conventional loans. However, conventional loans do not have a maximum income limit, area requirements as they can be used anywhere, and are able to finance vacation and investment homes. USDA loans are specifically for primary homes only. Is an USDA loan right for you? USDA loans are a great tool for home buyers who are looking to buy in rural areas. With the ability of acquiring a property with no money down, the USDA is a great tool for those who want to keep as much money saved for the future while getting one of the best mortgages out there. Andes Mortgage LLC., is a mortgage broker that specializes in originating USDA loans. One of the most important steps you can take is to get the right information and get pre-approved before you start home shopping. We can give you the guidance you need quickly, efficiently and thoroughly. If you want to check how much home you can qualify with the USDA loan, click
A Guide to FHA Loans
An FHA mortgage is a type of government-backed mortgage loan that can allow you to buy or refinance a home, often times, with looser financial requirements. These loans are offered by mortgage lenders, banks, credit unions and insured by the Federal Housing Administration. Borrowers who want to finance a home but don’t qualify for a conventional mortgage due to less than perfect credit or insufficient income, may find that an FHA loan is a more appropriate option for them. Here, we’ll take a closer look at FHA home loans, their requirements and whether an FHA loan might be right for you. What is an FHA loan? FHA loans are backed by the Federal Housing Administration, an agency under the jurisdiction of the Department of Housing and Urban Development (HUD). FHA loans are insured by the FHA, which simply means that this organization protects your lender against loss if you default on your loan. The biggest advantages with FHA loans is that they are available as a low down payment option, and with lower minimum credit score limits. Also, FHA offers looser guidelines regarding credit and credit history, for instance, if you have had a negative credit event such as a bankruptcy, a short sale or a foreclosure, FHA may still be able to help you get financing. FHA loan requirements There are certain requirements borrowers must meet to qualify for an FHA loan, including: You can only get a new FHA loan if the home you consider will be your primary residence, which means that it can’t be an investment property or a second home. The home must be appraised by an FHA-approved appraiser For new purchases, you must occupy the property within 60 days of closing. 580 minimum credit score 3.5% minimum down payment Maximum 47/57% debt to income ratios FHA loan down payment requirement Your down payment is a percentage of the purchase price of a home, and is an investment that you make into the equity of the property. For most FHA home buyers, the minimum down payment required is 3.5%, however, if a borrower wishes to put more money down, they can do so. On certain occasions, buyers with credit scores between 500-579 may qualify for an FHA loan if they can make a 10% down payment. FHA allows the borrower to have a down payment in the form of a gift by an immediate family member, or with the help of an organization or even through down payment assistance and grants. Something you need to know – The FHA Mortgage Insurance Mortgage insurance refers to a premium mandated by the FHA to protect the lender in case of a borrower default. In FHA loans, this mortgage insurance is a one-time cost of 1.75% of the base loan, which can be rolled into the loan and a monthly mortgage insurance premium. In most cases, you pay mortgage insurance for the life of an FHA loan (unless you made a down payment of at least 10%, in which case, MIP would be on the loan for 11 years). The FHA Mortgage insurance can be costly and compared to a conventional mortgage, it can be higher which in turn, produces a higher monthly payment for a borrower. This is one of the biggest disadvantages regarding FHA loans. FHA loan limits There’s a limit to how much you can borrow under an FHA loan, and the amount you qualify for is determined by the county where your desired property is located. According to the Department of Housing and Urban Development, the maximum FHA lending amount for high-cost areas (Los Angeles, Hawaii, San Francisco, New York, DC, etc) is up to $822,375 for 2021. However, in most parts of the country, the maximum FHA loan amount is $412,850.00 You can look up the FHA mortgage limits for one or more areas on the FHA mortgage limits page. Types of FHA Loans FHA offers multiple financing options but in this article, we will look into the most popular ones in the market. Buying a home with an FHA loan As mentioned before, FHA is a great option for first time home buyers and buyers who may not meet the qualifications required for a conventional mortgage. Buyers may qualify with a little as 3.5% down with a FICO at 580 or more. With an FHA loan, you may purchase 1-4 unit properties, townhomes and condos so as long as the project is FHA approved. FHA loan refinances FHA Rate/Term Refinance If you are homeowner wanting to take advantage of today’s low interest rates, to either lower the monthly payment or term of your mortgage, looking into an FHA rate/term refinance may be a smart move. Do note that FHA Rate/Term refinances require an appraisal on the property and the more amount of equity you have, the better. This may translate into a lower rate, mortgage insurance premiums, and more. FHA Streamline An FHA Streamline allows current homeowners with existing FHA loans to do a rate/term refinance without the need of an appraisal, income requirements and even credit score requirements. In the eyes of HUD, if you have a more affordable payment than what you currently have, odds are, you will most likely continue to pay on time without the fear of default. You may also be able to get a lower mortgage insurance rate as the MIP for FHA Streamlines is 0.55% of your overall loan amount annually. Although it seems like FHA streamlines are an unbeatable deal, sometimes, they are not. We encourage you on checking all your options available before determining if a streamline is the right thing for you. FHA cash out refinance An FHA Streamline allows current homeowners with existing FHA loans to do a rate/term refinance without the need of an appraisal, income requirements and even credit score requirements. In the eyes of HUD, if you have a more affordable payment than what you currently have, odds are, you will most likely continue to pay on time without the fear of default. You may also be
A Guide to Conventional Loans
Table of Contents What is a conventional loan? A conventional loan is one of the most popular loan programs out there to either purchase or refinance a home. It’s the most popular type of mortgage with lenders and borrowers, in fact, it makes up the majority of all home loans in the country. Conventional mortgages are not guaranteed by the government, such as FHA or USDA loans. A conventional mortgage, on the other hand, must follow Fannie Mae and Freddie Mac’s lending standards in order to qualify. These standards state that: A minimum credit score of about 640 to qualify, depending on the loan amount, debt-to-income ratio, and other factors A debt to income ratio under 45%—may be lower for borrowers with lower credit scores No major credit report issues, like bankruptcy or foreclosure A down payment of 3% or more (20% if you don’t want to buy mortgage insurance) A total loan amount of $510,400 or less (in most areas — $765,600 in higher-cost areas) So how do conventional loans differ from other mortgage types? Let’s dive in and see how conventional loans compare to other options. Conventional loans vs FHA loans The FHA loan is perhaps the second most common mortgage out there and a popular option for first-time home buyers. However, conventional loans tend to be more affordable than FHA loans, both upfront and over the life of the loan. For example, they don’t require upfront mortgage insurance, and if you make a 20% down payment, you do not have to pay for mortgage insurance at all. But even if you don’t put a 20% down, with a conventional loan, you can request cancellation of your PMI once your loan hits an 80% loan-to-value ratio — otherwise it will be canceled automatically once the LTV reaches 78%. On the other hand, mortgage insurance remains in effect for life on most FHA loans. Also, a conventional loan may require a smaller down payment than an FHA loan for a primary home (3% vs 3.5%), while also providing more flexibility for the type of property you want. With a conventional loan, you may purchase vacation homes and investment properties whereas, an FHA mortgage only allows you to purchase a primary residence. But you’ll need a higher credit score to qualify. FHA loans require at least a 500 to 580 credit score, depending on your down payment. Conventional loans vs VA loans The main difference between these two programs is that VA loans are only available to qualifying military personnel, veterans, and their spouses. These cannot be obtained by the average homebuyer. If you do meet the requirements for military service for a VA mortgage, odds are, the VA loan will most likely be your best option as it has more benefits such as: They require zero down payment The seller has to pay a portion of your closing costs There’s no mortgage insurance required They tend to have some of the lowest interest rates One thing to consider is that VA loans are for primary homes only. You will not be able to purchase an investment home or a vacation home with a VA mortgage. Conventional loans vs USDA loans USDA loans are only available in select rural areas whereas conventional loans may be obtained in any location throughout the country. When compared to other loan alternatives, USDA loans might appear to be a very cost-effective option. In fact, USDA mortgages tend to have lower interest rates and do not require a down payment either. Keep in mind that USDA has some stipulations that conventional loans do not. For one, there is no maximum income for a conventional loan, but USDA loans have income limits that vary based on the county and state where you’re buying the home. Your lender will take into account everyone in the household’s income, not just those on the loan, while determining your eligibility for a USDA loan. Borrowers may also come across limits on loan amounts that may be lower than what may be obtained with a conventional mortgage. Conventional loans vs Jumbo mortgages Also known as “Non-conforming” loans, Jumbo mortgages are intended for financing high-priced properties, as their name implies. Basically, they come into help when the home buyer seeks a loan greater than the maximum allowed on a conventional mortgage. In most places around the country, the maximum allowed conventional loan for a single-family home will be $554,100 (as of 2021). In “higher-priced” markets such as DC, Los Angeles, San Francisco, New York, and other designated high-cost areas, that number to $822,375. Thus, a Jumbo mortgage comes in when a borrower needs a higher loan amount to finance a home. One important thing to consider is that Jumbo loans aren’t backed by federal agencies and therefore, lenders are taking on more risk when they offer them. This means that a prospective borrower will face more stringent credit, asset, and income requirements. Is a conventional loan the right option for you? If you meet the basic qualifications for a conventional loan, this option may be the best one for you. Although government loans have a lot of benefits, most sellers prefer buyers who are qualified for a conventional loan instead. The reason is that qualifying for a conventional loan may be harder than an FHA, VA or USDA mortgage. Conventional loans offer certain benefits that make it a better loan than other options. For instance, when comparing against an FHA mortgage, a conventional loan may save you thousands of dollars over the long term due to the mortgage insurance premium. Whatever you decide, knowing your options is the best thing you can do. Andes Mortgage, LLC. is a full-service mortgage broker and we pride ourselves with helping our clients understand how their mortgage fits their overall financial picture. Because we are mortgage brokers, we do the mortgage shopping for you as we work with multiple lenders and banks. It only takes at once in just a few minutes and won’t affect your credit score. Click the link below to get started.