
Understanding conventional home loans is not as intimidating as it first seems for prospective homeowners. Often, people shy away from the thought of a conventional home loan or conventional mortgage, deeming the requirements too strict. But in fact, they’re more accessible than they initially appear. Plus, the assumption that a 20% down payment is always needed is no longer the case. Let’s delve deeper and see if opting for a conventional home loan when you’re planning to buy a house in Columbus, Ohio, is the right move for you.
Conventional Mortgages: A Brief
When you decide to buy a house in Columbus using a conventional home loan, you’re essentially opting for a mortgage not insured by the federal government. Such loans are often referred to as conforming loans due to their adherence to the lending regulations established by Fannie Mae and Freddie Mac. These terms are frequently used interchangeably; however, not all conventional loans fall into the conforming category.
Qualifying for a conventional mortgage or conventional home loan demands compliance with basic lending requirements set by Fannie Mae, Freddie Mac, and the individual lender. While Fannie and Freddie establish the qualifying and minimum loan prerequisites, lenders can enforce their own, stricter regulations. For instance, even though Fannie and Freddie’s guidelines technically allow a conventional home loan with a meager 3% down payment, some lenders might require a full 5%. Also, some lenders may enforce higher standards for credit scores or debt-to-income ratios.
Therefore, if you’re on the threshold of qualifying for a conventional home loan in Columbus, Ohio, it could be beneficial to explore different lenders. Don’t be disheartened by initial rejections, try other lenders who might approve your mortgage application.
Navigating Qualification Criteria
Considering a conventional home loan for your Columbus house? Here’s what you need to know:
Credit Rating
In general, a credit score of at least 620 is needed to qualify. However, a better score translates to lower interest rates and lower PMI costs. Those boasting credit scores over 720 usually secure the most favorable conventional mortgage rates.
Initial Payment
A common myth is the need for a 20% down payment to purchase a home. Standard conventional loans, however, demand just 5% down. Moreover, certain conventional loan programs, such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible loan, allow you to buy a home with only a 3% down payment and allow for lower rates for private mortgage insurance.
Income/Employment
You must demonstrate at least two years of consistent income within the same field or with the same employer. Various types of income, including bonuses, commissions, and gig work can assist in qualifying. Lenders may also consider other income sources such as retirement income, alimony, child support, and Social Security payments.
Debt-to-Income Ratio
Lenders compare your income to your existing debt load when approving your home loan. This Debt-to-Income ratio (DTI) is the percentage of your gross monthly income that goes towards monthly debt payments. For a conventional loan, lenders prefer a DTI ratio under 36%, but DTIs up to 43% are often accepted. You might qualify with a DTI as high as 45-50% with compensating factors like a high credit score or substantial cash reserves.
Conventional Home Loan Caps
Your conventional conforming mortgage must not exceed the local loan limits set by the Federal Housing Finance Agency (FHFA). These limits fluctuate annually and are typically higher in areas with high property values.
Property Criteria
There are specific property requirements to consider when purchasing a house in Columbus using a conventional loan. It must be a primary residence, structurally sound, and carry no claims against it, among other specifications. An appraisal is also necessary.
To determine if your desired Columbus property meets these criteria, please feel free to reach out to us here at the Goldsmith Team.
Final Thoughts on Conventional Loans
When planning to buy a house in Columbus, remember that qualifying for a conventional mortgage is not as challenging as many think. A credit score of at least 620, two years of stable employment/income, a 3-5% down payment, and a DTI below 43% is generally all you need. However, allow ample time for the process; conventional loan applications usually take between 30 and 45 days as your lender thoroughly reviews your financial documentation.
Is a conventional loan the best choice for your Columbus house purchase? This largely depends on whether you and the property fulfill the qualifying criteria. While you’ll know your own eligibility, a competent Columbus real estate agent can help you determine if the property qualifies. To make the best decision when buying a house in Columbus, contact your local Columbus Real Estate experts today at the Goldsmith Team.