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What is A Conventional Loan?
Have you been searching for a home loan with no upfront mortgage insurance and fast unwriting? A conventional loan is one of the most popular types of mortgages in California and ideal for borrowers with good credit. Conventional loans require a 5% minimum down payment and define any type of mortgage that is not guaranteed or insured by the federal government.
Conventional mortgages can be easier to process because they don’t receive government backing like FHA or VA loans do. They offer fixed rates and terms, which makes them less complicated than some of the more complex government-backed programs on the market today.
Because there are several different sets of guidelines that fall under the umbrella of “conventional loans,” there’s no single set of requirements for borrowers. However, in general, conventional loans have stricter credit requirements than government-backed loans like FHA loans. In most cases, you’ll need a credit score of at least 620 and a debt-to-income ratio of 50% or less.
Conventional Mortgage Rates
Conventional mortgage rates in California change daily and are usually slightly lower than FHA loan interest rates and slightly higher than VA loan interest rates. The right type of loan for you depends on your own personal situation, but the best way to find out is to talk to Dennis today to find out the best rate available based on your own personal situation!
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Conventional Loan types include:
- Fixed Rate Loans
- Adjustable Rate Loans (ARMs)
- Combination (Hybrid) Loans
- Balloon Mortgages and Pledge Asset Loans
- Jumbo / Construction Loans
- Reverse Mortgage
Eligible properties for conventional financing
- Single-family homes (detached homes)
- Adjustable Rate Loans (ARMs)
- Planned Unit Developments (PUDs)
- Condominiums
- Jumbo / Construction Loans
- 2, 3, and 4 unit properties
Requirements
The requirements to qualify for a conventional mortgage in California are generally more specific than government-backed loans. For example, most conventional loans require a credit score that is no lower than 620, while 740 will provide a more affordable rate. There are three primary qualification categories that you need to keep in mind when applying for a conventional loan:
Down Payment
It's common for first-time homeowners to acquire a conventional mortgage with a down payment as low as 5%; however, the down payment requirement can vary based on your personal situation and the type of loan or property you're buying.
Income/Debt Ratio
A common metric used to measure financial health is called a debt-to-income ratio. This is how much income you bring into your household versus how much debt you're carrying. The higher your income and lower credit card debt, the better off you'll be here.
Credit Score
In most cases, those looking to get loans through conventional sources will be required to have a credit score of at least 620 in order to qualify. If you have a credit score below 620 our government-backed loan options require much lower credit scores.
Loan Size
For a conforming conventional loan, your loan must fall within the limits set by Fannie Mae and Freddie Mac. The limit changes annually. For 2021 the conforming mortgage limit in California is $548,250 to $822,375 (depending on your county) for a single-family home. Click here to visit the Federal Housing Finance Agency website.
Private mortgage insurance (PMI)
Private mortgage insurance (PMI) is required when you put less than 20% down for a conventional loan in California. Unlike FHA mortgages, PMI doesn’t have to be carried with the loan forever – it can be removed after reaching 20% equity in the house.
For those with excellent credit, private mortgage insurance on conventional loans can cost less than FHA mortgage insurance premiums. Why? PMI is a risk-based insurance, like auto insurance, meaning the better your credit history and the lower your rate of delinquency, the lower your premiums. The lower the premium rates are for you, the smaller monthly payments you will have to make. So if you have a clean record with no delinquencies or late payments over the past year then this might be an option worth considering when looking into buying your next property!
how to apply for a conventional loan in California
Our Process
We make it easy with six simple steps that are designed to achieve your financial goals.
1. Consultation
We will walk you through the loan process, evaluate your needs, set expectations, and finally discuss the options that are best for you.
2. Application
You will complete an application and submit any requested documents.
3. Appraisal
We will set up an inspection of your property and give you a copy of your appraisal once completed.
4. Underwriting
We then will review your property details, income, assets, and debts.
5. Approval
Once all conditions have been reviewed and are satisfied, your loan will then be approved.
6. Closing
You will sign your final loan documents, and then the loan will be available for funding.
conforming loan limit in california
The maximum amount you can borrow with a conventional loan in California depends on the type of conventional mortgage you choose — “conforming” or “non-conforming”. Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Nonconforming loans don’t meet Fannie Mae or Freddie Mac guidelines, but they are also considered conventional.
Conforming Conventional Loan
The FHFA sets these loans, and there is a maximum amount that you can borrow based on your location. For 2021 the conforming loan limit in California is $548,250 to $822,375 (depending on your county) for a single-family home
Non-conforming Conventional Loan
Non-conforming conventional loans are often for larger amounts of money, depending on the borrower's financial situation. These loans are often for larger amounts of money than your standard loan amount, up to $2 million dollars or more, depending on the borrower's financial situation.
Conventional loan california
Conventional Loan Required Documents
To apply for a conventional loan in California we will require documentation to substantiate your income and assets in order for you to get the best interest rates and terms. Some of the required documentation includes:
- 60 days of bank statements (all pages)
- 30 days of pay stubs
- 2 years tax returns if self-employed, have rental properties, or non-salary income (retirement, pension, etc.)
- 2 years W2s
- Social security, retirement and/or pension award letters, and 2 years’ 1099s
- Rental agreements for any investment properties currently owned
To find out more about the process of qualifying for a conventional home loan in California and how it affects you, contact Dennis from C2 Financial Corp today.
conventional mortgage California
The Advantages of a Conventional Mortgage
A conventional mortgage is an excellent option for people in good financial standing who are looking to buy a home. Conventional loans in California are great for borrowers who are looking for the best in flexibility and affordability. There are several reasons why a conventional mortgage loan could be the best option for your next home purchase, these include:
Lower Interest Rates
When it comes to loans, conventional are always a popular option. Why? They have a high standard of verifying income, assets, and collateral- which can result in lower borrowing costs for consumers. If you’re looking for a hassle-free verification process with low fees, then consider applying for a conventional loan!
Faster Loan Underwriting
Conventional loans can be more appealing for those who are looking to get a mortgage quickly. With conventional loans, the normal bureaucratic process is shortened because these mortgages do not require as much paperwork and can be approved faster. Sellers also benefit from this because they typically don’t have to worry about an FHA inspection that may lead them to make costly repairs before selling their house.
Various term lengths
Conventional loans come in all types and sizes, suitable for every kind of borrower. Whether you want a 10 year fixed mortgage or an adjustable 7-year term, conventional loans are a great option.
Security
Conventional mortgages are usually fixed-rate products, meaning that once an interest rate is locked in, the borrower will keep that same payment for the life of the loan. Borrower’s payments stay the same month to month, whether interest rates climb or housing prices fall. Even if interest rates fall far enough to make refinancing tempting, borrowers have the flexibility with a conventional mortgage because they have already met the approval requirements.
Conact Dennis today to determine if a conventional loan is the best fit for your situation.
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