Conventional loans are not as commonly used as FHA loans by first time home buyers, but if you can qualify for one, it’s most definitely the way to go. The amount of down payment needed is the real challenge for most buyers. Below are the facts regarding Conventional loans.
- Minimum down payment…………5% with PMI/20% without PMI*
- Maximum loan amount………….…$417,000
- Minimum credit score………….……640
- Maximum Seller contributions….3% to 6% of purchase depending on Loan To Value
- Source of down payment………….Can be gift or secured loan
*Being a first time home buyer, PMI might not be something you’re familiar with. A Conventional loan is a private loan, unlike an FHA loan which is government backed. PMI or Private Mortgage Insurance is the coverage you pay which covers your mortgagor in case you default on your loan. It is protection for your lender and it’s the trade-off for a being able to buy a home with as little as 5% down.
If you’re getting a Conventional loan and have 20% set aside for your down payment, there won’t be any PMI because banks see you as a lower risk than someone who has less than 20%.
PMI costs typically range from 0.3% to 1.15% of the total loan amount. There are different options available regarding how your PMI is paid. The total amount can be rolled into the loan, you can pay it up front or you can include it in your mortgage payment. You’ll want to speak with your lender about the best way to handle it.
And that brings us to one of the most important steps for first time home buyers…finding a lender! I would love to refer you to one of the many awesome lenders I know!
If you need an awesome Realtor call me, I’m here to help!
Have a great day and happy New Year!