First of all, a conventional home loan is not guaranteed by a government organization, such as the Federal Housing Administration or the Department of Veterans Affairs. The qualifying criteria for a government-backed loan and a conventional loan aren’t much different, but conventional loans are likely to be harder to get and more stringent on qualifications. Let’s take a look at some of the criteria needed to apply for your loan
- Income – Your monthly mortgage payment and monthly debt loads must fall within certain percentages in relation to your gross monthly income in order to qualify for a conventional home loan. Your monthly mortgage payment, including taxes, insurance and other fees, cannot exceed 36 percent of your gross monthly income.
- Credit Score – Most conventional loans conform to guidelines set by two of the largest financial institutions in the U.S.: Fannie Mae and Freddie Mac. Both entities purchase loans from other financial groups, and if the loans don’t conform to Fannie Mae or Freddie Mac rules, they cannot be purchased. Your credit score is a major part of the equation when qualifying for a conventional mortgage.
- Financial History – Your lender will want you to provide your address history for the past two years, plus documentation to verify your identity. This ID can include a driver’s license or a Social Security card.
- Down Payment – The standard down payment for a conventional loan is 20% of the cost of the home. If you are unable to put down this amount, there are many ways around the requirement.
- Home Price – The amount you want to finance may play a role in whether you get financing. Because many mortgage companies choose to sell loans to Freddie Mac or Fannie Mae on the secondary market, they must make sure the loan conforms to their loan limits.
What type of guidelines do I have to meet for a Conventional loan?
• At least two years of steady employment, preferably with the same employer.
• Income over the last two years that has been steady or has increased.
• If you have filed for bankruptcy in the past, it must be at least two years from a chapter 13 and four years from a chapter 7, with a good credit record since filing and no hiccups.
• A mortgage payment that equals approximately 36% of your gross income or less, which is based on the purchase price of the house, your other monthly bills, income, and current interest rates.
