Gainesville Conventional Mortgage Loans Requirements
If you are planning to purchase or refinance a home and need to know what options you have for financing, this article will help you understand conventional mortgage loans in Gainesville, Florida.
Conventional loans are guaranteed by Freddie Mac and Fannie Mae, which simply means that Fannie Mae and Freddie Mac guarantee to purchase the loan from the mortgage lender. This is what created the secondary mortgage market, making it easier for banks to lend money. You are typically required to have more cash and a higher score with a conventional mortgage as opposed to other options like FHA or USDA.
Obtaining an approval is always the first step for any loan. We process your loan application through an automated approval system: DU (or desktop underwriter) for Fannie Mae, or LP (or loan prospector) for Freddie Mac, to see if your loan is conforming and qualifies for a conventional mortgage. Occasionally a particular lender won’t do the loan even if you have a DU approval. That is where Landmark Mortgage Planners has a significant advantage over most banks. We have multiple sources for conventional mortgage loans – if one of our underwriters won’t do a loan often another one will.
Conventional loans require a minimum 620 middle score. Some niche (or specialty) lenders will go lower but for the most part you are going to need 620 or higher. The higher the credit score and the bigger the down payment, the better interest rate you will receive. You can find out the conventional rate that you qualify for by applying for online pre-approval now.
The minimum down payment for a conventional mortgage loan is 5% not including closing costs. Conventional financing with 20% down payment eliminates the need for monthly mortgage insurance. If you put down less than 20% you will be required to have mortgage insurance. This mortgage insurance is different than your homeowners insurance for fire or other damage. Mortgage insurance covers the lender in case of default and is commonly referred to as PMI, short for “Private Mortgage Insurance”. The annual PMI rate is based on amount of down payment and the client’s credit score. One key feature of conventional mortgage loans is that there is no “funding fee” or “upfront mortgage insurance” that is financed into the loan like with FHA, VA, or USDA financing.
Gifts for your down payment or closing costs are allowed as long as they are from a close relative with some stipulations. If the gift received is 21% or more of the sales price, then there is no need to provide any of your own cash. Otherwise, you (the buyer) are required to provide 5% of the down payment from your own funds. Compare conventional rates with other programs – get rates now.
Income Requirements for Conventional Mortgage Loans
All mortgage loans require verification of income – conventional mortgage loans are no exception. If you receive a W2, then you will typically be required to provide 2 years of W2s and 4 weeks of paystubs to prove your income to the underwriter. If you are self employed, you will need to supply complete tax returns with all schedules for the last 2 years. A conventional mortgage is usually the most flexible when it comes to self employed income. There are some conventional lenders who currently require only one year of tax returns. Government backed loans (FHA and VA) will require a minimum of 2 years returns without exception.
If you are a landlord, you cannot use rental income that you have received unless it has been reported on your tax returns for at least 2 years. An average can be used, and in most cases the underwriter will use 75% of the rent received minus expenses in order to account for possible vacancies. Find out if you qualify for a conventional loan now.
A seller concession is where the seller pays certain closing costs or fees for the buyer. This is acceptable on conventional loans with some variations. If you put down at least 10%, then the seller is allowed to pay up to 6% of the sales price toward your closing costs, points and/or prepaid items. If you put less than 10% down, the maximum seller concession is limited to 3%. If the property is an investment property, seller concessions are capped at 2% of the sales price. Seller concessions are a way to leverage the seller and bring less money to closing. Make sure to discuss this with your realtor before you make an offer and you don’t ask for more than you are able to receive!
There may be a little more flexibility on the overall condition of a property with a conventional loan vs a government loan, but the property still needs to be in working order.
Depending upon the lender, you may be able to put the cost of repairs into “escrow” if the seller can’t or won’t make the repairs before closing. With an escrow hold back, a portion of the sales proceeds are held in escrow after closing until the repairs have been completed. An appraiser will be required to confirm that the work has been satisfactorily finished before the escrow will be released. Different lenders have different rules for escrow hold backs, with amounts typically ranging between $2,000-$5000.
It is always best to see a mortgage professional and obtain a pre-approval before you begin to look for a property. Click Here to learn more about the pre-approval process and learn why pre-approvals are necessary, even if you’ve purchased before.