For this update, we’ll be talking about Eligibility Requirements for the Conventional Loan Program. Additionally, we’ll be separating how lenders view borrowers into “categories” to give you an idea of where you may end up.
How to Apply For the Conventional Loan Program: Eligibility Requirements
The Conventional Loan program is a little different than other programs. For example, the USDA Loan Program has income requirements and the property must be eligible as well. But if those requirements are met, you can pretty much get a USDA loan as long as your credit score is 580+.
However, for the Conventional Loan program, there are no income or property restrictions. All available properties for sale are eligible for a Conventional Loan Program. There also aren’t any sanitary or repair conditions that need to be satisfied to purchase either.
The Conventional Loan Program will approve new construction as well as existing homes, just like other loan programs. Additionally, homes can be purchased if they require repair or complete renovation as well.
Unlike the USDA and FHA Loan Programs, this home being purchased can be a secondary or even tertiary home with the Conventional Loan Program. Additionally, homes are allowed to have “income-producing” qualities, such as a back entrance to the basement which may have a kitchen and bathroom in it.
For Conventional Loan Programs, the borrower has to be the one to meet requirements. However, there are several different “levels” or “tiers” of requirements that can be met. Keep in mind that these aren’t actual categories used by lenders and should only be used to help determine where you may sit.
Let’s say in the following example, all borrowers are buying the same home listed at the exact same price.
Top Tier – The Perfect Borrower In The Eyes Of A Mortgage Lender
The highest tier are borrowers who wish to bring 20% down and have a credit score of 780 or higher. These borrowers are the ones that will have the largest benefit with a low interest rate for the life of the loan, and benefit from doing a Conventional Loan the most.
This means this category of borrowers will have the lowest monthly payments approved by mortgage lenders due to the lowest interest rates, no private mortgage insurance fees, and no borrower risk fees.
Mid Tier – Good Credit But Minimum Down-Payment
The next tier of borrowers are those who have a credit score of 780 or higher, but want to bring the minimum down payment of 3% to the table. These borrowers will still be approved with a good mortgage rate, however the monthly payment will include needing to pay for private mortgage insurance, also known as PMI.
This category of borrowers will have the second lowest monthly payments due to having to pay the private mortgage insurance premiums on top of the mortgage payments.
Lowest Tier – Lower Than Desired Credit Scores
The last tier of borrowers are those that may have a lower credit score than the other two tiers. If this borrower is able to bring a 20% down payment to the table, they may be able to reduce the monthly payment amount by not needing private monthly insurance.
However, this borrower will still pay more money over time due to having to pay an increased interest rate and a borrower risk fee. If the borrower also wishes to bring the minimum down payment, they will have to pay private mortgage insurance premiums on top of these other fees as well.
For the next part, we’ll be discussing more about what it’s like to go through the Conventional Loan program