What is a Conventional Mortgage?
A Conventional mortgage is backed by the government-sponsored enterprises – Fannie Mae and Freddie Mac.
Conforming conventional loans must fall within the limits set by Fannie Mae and Freddie Mac. As of 2023, the limit is $726,200 for most counties in the country.. with some counties in high-cost areas having even higher limits. If the loan surpasses that limit, it becomes a jumbo (nonconforming) loan.
Usually, you’ll be able to borrow a higher loan amount on a conventional loan than on a FHA loan.
Potential Kansas City borrowers must complete an official mortgage application (and usually pay an application fee), then supply their lender with the necessary documents to perform an extensive check on their background, credit history, and current credit score.
Documentation Needed to Get a Conventional Mortgage
- Proof of income and assets.
- Employment verification.
- A driver’s license/state ID card.
- A valid social security number.
Other Requirements
Do you know how much home you can afford?
Most people don’t... Find out in 10 minutes.
Today's Mortgage Rates- Have a FICO credit score of at least 620 (this number may vary situation by situation).
- At least 3% or 5% down payment, depending on qualifications
- Have a debt-to-income (DTI) ratio of less than 50%. This means that your total monthly debt payments can’t be more than 50% of your pretax income (includes debts that you aren’t actively paying).
- In the case of a conforming conventional loan, your loan must fall within the limits set by Fannie Mae and Freddie Mac.
Down Payment
The requirement for a down payment can vary based on your personal circumstances and the kind of loan or property you’re getting. First-time home buyers in Kansas City have the possibility of acquiring a conventional mortgage with a down payment as low as 3% through financial assistance programs.
Private Mortgage Insurance
If you choose to make a down payment of less than 20% on a conventional loan, you’ll be required to pay for private mortgage insurance (PMI), which the government requires to protect and insure the financing of the property. This is different from FHA loans, where you have to pay an upfront mortgage insurance premium (UFMIP) and an annual MIP.
Your PMI is typically included as part of your monthly mortgage payment, but there are other ways to cover the cost as well. There’s the option to pay it as an upfront fee, or, alternatively, in the form of a slightly higher interest rate.
When you reach 20% equity on your home, you can ask your lender to remove the PMI from your mortgage payments. Once you reach 22% equity, though, the PMI will automatically be removed.
Different Types of Conventional Mortgages
- Conforming – meets loan standards set by Fannie Mae/Freddie Mac. For clarification: the FNMA (Fannie Mae) and the FHLMC (Freddie Mac) are home mortgage companies created by the U.S. Congress. They make the mortgage market more affordable and stable, and they provide liquidity to thousands of loans, banks, and mortgage companies in America.
- Nonconforming – (like a jumbo loan, for example) doesn’t meet the loan standards set by Fannie Mae/Freddie Mac. Oftentimes, jumbo loans require a higher credit score than conforming ones do.
- Fixed Rate – for as long as you have the mortgage, the interest rate will remain the same.
- Adjustable Rate – (also referred to as hybrid ARMs) rates change annually, after staying fixed for a set amount of years.
- Low Down Payment – more flexible than other types; you can get a down payment as low as 3 or 5 percent.
- Renovation – allows you to finance a house while also paying for renovations (good if you’re buying a fixer-upper).
Different Types of Conventional Mortgages
- With 20%+ down payment, there’s no PMI needed
- Even with less than 20% down and good credit, the PMI on Conventional can often by less than FHA
- Borrow a higher loan limit
Conventional Mortgage FAQ’s
What types of homes can I purchase with conventional financing?
Conventional loans allow you to purchase single family homes, condos, investment properties, townhomes, lofts and 2nd vacation homes.
How much can the seller pay towards my closing costs?
Typically the seller can pay 3% of the sales price towards closing. If you put a down payment over 10% they can pay up to 6% towards your closing. This is assuming that your home purchase is for a primary residence. Investment properties are capped at 2% allowable seller paid closing costs.
If my credit score is low, how can I raise it?
Paying your bills on time, reducing your credit balances, and trying to not apply for credit too often are all ways that you can raise your FICO score.
How long does it take to purchase a home?
The normal turn time for a purchase is about 30 days. This 30-day window also assumes you have all your documentation available, provide accurate and verifiable information on your mortgage application and remain diligent in honoring the additional documentation requests that, inevitably, come from underwriting.
Keep in mind that your personal financial situation will probably be closely scrutinized when acquiring a conventional mortgage; this is because loans like these are often riskier for lenders to originate than other types of loans. Due to conventional loans being harder to obtain, they typically aren’t very popular among first-time homebuyers in Kansas City.
If your credit score is in good shape and you can afford to make the required down payment, then a conventional mortgage might be the right choice for you. If not, consider getting a government-insured mortgage instead.
Questions About Conventional Loans in Kansas City?
Contact McGowan Mortgages today at (816) 631-9687.
Do you know how much home you can afford?
Most people don’t... Find out in 10 minutes.
Today's Mortgage Rates
