Texas Conventional Loans: Everything You Need To Know
Remember as a kid, you used to dream about purchasing a home? Maybe you didn’t want to rent anymore, and that’s when you started to daydream about it. Whatever the case is, you probably envisioned everything from a gorgeous backyard to a front yard with a tree in it, all the way to what your rooms were going to look like.
Know what you weren’t imagining? You weren’t picturing research mortgage options and speaking to lenders. Now you probably are overwhelmed and you might prefer to go back to daydreaming. So, what should you be doing now?
Let’s start things off by talking about the conventional loan. This loan is the most common mortgage option out of there. You might have even had a person recommend this type of loan to you.
However, do you know what a conventional loan is? How are they in regards to other loan options? Before you decide whether or not to apply for a conventional loan, make sure you read the rest of this article.
What Is This Type Of Loan
It is a mortgage loan. It isn’t guaranteed by the government, nor is it insured. Instead, private lenders are the ones backing the loan. The borrower typically pays the insurance.
Conventional loans are more common than loans backed by the government. In fact, over 70% of new home sales involved conventional loans. That was just in the first quarter of 2018 alone.
There is a lot of flexibility with conventional loans. But, they are extremely risky due to not being insured by the government. Not only that but qualifying for a conventional loan can be extremely difficult.
Conventional Loans & Government-Backed Loans: The Difference
When you’re considering a mortgage, you have to know the difference between government-backed loans and conventional. Government-backed loans are loans like VA loans and FHA loans. These types of loans are backed by the government, in some capacity. For example, the Veterans Administration backs VA loans and that administration is part of the government.
An FHA loan requires you to put down 3.5%, at the very least. You have to pay a mortgage insurance premium every single month too. The insurance is paid to the lender in the event you default on the loan.
In order to get a VA loan, you have to be or have been in the military. This includes being a member or former member of the National Guard, or you have an eligible surviving spouse. You don’t need a down payment with a VA loan, but there is a funding fee you pay. It’s a one-time fee and it is around 2% of the loan amount.
If you default on the loan, the lender is the one at risk, who will sell your home via a short sale or foreclosure if you do end up defaulting. The bottom line is you don’t get out of this loan simply by defaulting on it. Just like any other kind of loan, there are consequences associated with not keeping up with payments or defaulting.
Lenders take on additional risk. This is why you have to pay private mortgage insurance. The way to avoid this is to put at least 20% down.
Conventional Loans: The Different Types
There are two types. One is a conforming loan. The other is a non-conforming loan. Below are a few key differences between the two types of conventional loans.
Conforming Conventional Loans
Fannie Mae and Freddie Mac have guidelines that loans have to meet in order to be classed as a conforming conventional loan. These two enterprises are sponsored by the government, and they buy mortgages from lenders.
The loan limit is one of the rules set forth by the two enterprises. A one-unit property has a baseline loan limit of around $450,000. The limit may be higher if the property is located in a high-cost area. If you want to find out what the current conforming loan limits are in your area, then you can contact lenders and ask them or you can ask your current lender.
Nonconforming Conventional Loans
How about loans that exceed the limit? These loans are called non-conforming conventional loans. They are also called jumbo loans.
Nonconforming loans are loans that aren’t purchased by Freddie Mac or Fannie Mae. This is because the loans don’t meet requirements for loan amounts. Private institutions or lenders are the ones that fund these types of loans.
Qualifying For Conventional Loans
You have to speak with a lender, as this is the first step you take. If you’re in the middle of buying a home, speak to Texas Mortgage Pros. They can give you excellent advice.
When you speak with a lender, they’ll ask you for info. This includes documentation such as bank statements, pay stubs and tax returns to name a few. The point of this is to make sure you have income coming in on a regular basis.
A down payment is required in order to be approved for a conventional loan. The amount could be as little as 3% of the amount. However, it’s a good idea to put down 20% or 10% at the very least, that way you won’t have to pay PMI.
Speak with your lender and ask how to become a certified home-buyer. You will have to take a few extra steps in order to do this, but it is worth it. In short, this will help you get to the closing part of the process much quicker, so essentially you will have an edge over other people searching to buy a home.
Need Additional Mortgage Help
Do you need additional mortgage help, even after reading all of the above? Remember, the type of mortgage you decide to go with can impact your financial future. This is why you want to learn as much as you can about the different options out there. The more research you do, the better off you’ll be.
You want to choose a lender that will thoroughly explain what your mortgage options are and a lender that will help you make a well-informed decision. This is why you should speak with Texas Mortgage Pros. They have helped many people get the financing they need for the home of their dreams. Go ahead and contact them today or whenever the time you want to buy a home comes.