Here’s what you need to know about how to qualify and apply for a conventional mortgage.
Conventional Loan Down Payment Requirements
Conventional mortgages require a minimum upfront payment of 3% if you have excellent credit, but most borrowers put down 10-20%.
It’s a common misconception that you must put 20% down on a conventional mortgage. However, you only have to put 20% down if you want to avoid paying private mortgage insurance.
PMI protects your lender from loss if you default on your loan, but for you, it’s just another expense.
It is to your financial benefit if you are able to spend your money on paying off your principal instead of paying the cost of mortgage insurance. The more money you are able to put down, the less interest you will pay.
Overall, with a higher down payment you will pay off your loan faster as well as pay less overall. It’s best to have your 20% down payment in hand before you apply for the mortgage.
Other Requirements to Borrow a Conventional Home Loan
To take out a conventional mortgage, you need a credit score of at least 620.
However, borrowers with higher credit scores can get lower interest rates.
You’ll also need a debt-to-income ratio of less than 43% and steady income and employment.
You can use a traditional loan to borrow up to $510,400 in most areas, but your lender will be able to tell you how much you are able to borrow when you get pre-qualified. Specific requirements can vary by lender.
It’s best to look around and get pre-qualified with multiple lenders to find the one that works best for you.
Documents Needed to Apply or Prequalify for a Conventional Mortgage
You must bring your driver’s license, social security card, tax returns, pay stubs, bank and asset account statements, and written permission for your lender to run a credit check.
Benefits of a Conventional Mortgage
Traditional mortgages offer low interest rates, flexible upfront payment options, and lower mortgage insurance rates.
Traditional loans are the cheapest and most beneficial mortgage option for borrowers, so if you have the financial footing to qualify for conventional financing, it’s best to avoid government mortgage loans.
When you take out a conventional mortgage, you’ll be able to select a 15 or 30-year term.
Many financial experts advise borrowers to select a 15-year term to save money on interest and private mortgage insurance.
Taking out a conventional, 15-year loan with a large down payment is by far the most efficient, affordable way to purchase your dream home.
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