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When you are looking for a home loan, a conventional mortgage is often the best option. This type of loan requires as little as 3% down payment and a credit score of 620 to 640. Its benefits include lower monthly payments and a lower interest rate. However, it is important to choose the right type of loan for your specific needs.
3% Down Payment
A 3% down payment on a conventional mortgage can make buying a house easier. This mortgage program is designed for single-family, principal residences. However, you can only use it on a home that is one of the conforming loan amounts. If you want to use this program for a multi-unit property or a second home, you’ll need to look elsewhere.
In order to qualify for a 3% down conventional mortgage, you’ll need to meet minimum credit score requirements set by Fannie Mae. The requirements vary by bank, but most lenders require that you have a credit score of at least 680. The 3% down conventional mortgage product from JPMorgan Chase, for example, requires a credit score of at least 680, whereas Freddie Mac’s Home Possible Advantage guidelines require a score of 660 or higher. If your credit score is lower than this, you’ll most likely need to pay higher monthly mortgage insurance. However, if you have a high enough income to offset the lower score, you’ll likely qualify for the 3% down conventional mortgage.
620-640 Credit Score Required
Whether you want a conventional mortgage or a FHA loan, a 620-640 credit score is required for most lenders. However, your lender may prefer a higher score. A higher score can get you a better interest rate or a bigger loan. If you want to improve your credit score, here are some tips. Make sure to pay your bills on time and try to reduce unnecessary debt.
The minimum credit score for conventional loans used to be 640, but it has been reduced to 620. While 640 is still the minimum, a 620 score will get you a lower interest rate on your loan. Your debt-to-income ratio is also a factor. The lender may also require that you have additional cash reserves or a higher down payment to qualify for a mortgage.
Lower Monthly Payments
Choosing a conventional mortgage can help you purchase a higher-priced home. However, this type of loan also requires a larger down payment than an FHA loan. Conventional loans are divided into two categories: conforming and nonconforming loans. Conforming loans must meet guidelines set by the Federal Housing Finance Agency. This year, the FHFA increased the maximum conforming loan limit to $548,250. In the future, this limit will likely be higher as home prices rise.
One of the best ways to lower monthly payments with a conventional mortgage is to refinance the loan. Refinancing does not reset the loan term or interest rate, but it can lower the monthly payments by hundreds of dollars a month. In most cases, the 30-year fixed-rate conventional mortgage is the best option for most home buyers and refinancing clients. Another option is to opt for an adjustable-rate conventional mortgage. Adjustable-rate mortgages have lower monthly payments than fixed-rate loans.
No Mortgage Insurance
No mortgage insurance for conventional mortgages is not required for every borrower. For example, if a borrower puts down 20% of the purchase price, he will not be required to pay mortgage insurance. This will reduce his risk of foreclosure, but not eliminate it. A borrower who makes a smaller down payment than 20% will have to pay private mortgage insurance.
Private mortgage insurance, or PMI, protects the lender if the borrower defaults on the loan. It is arranged by the lender and provided by a private insurance company. It is required for conventional mortgages with low down payments and little equity.