What are the Down Payment Requirements for Conventional Loans?

Buying your dream house can be a great thing. However, it is a huge expense that might not be readily available for everyone. This is why the conventional home loan is the best option for you!

Conventional home loans are not provided by the government, however, they follow government guidelines.

What are conventional loans?

A conventional loan is a type of mortgage that is not secured by any government agency. These are offered by private mortgage lenders such as banks, loan companies, etc. These types of loans usually have a fixed rate of interest throughout the tenure of the loan.

How does it work?

Wondering how to apply for a conventional loan? Well, it is quite similar to other loan applications, however, the regulations can be a bit stricter than usual. First of all, you need to submit an official mortgage application which comes with an application fee. In addition, the lender will demand you to produce the necessary documentation and run a thorough background check, look for your credit history, scores, etc.

As for documentation, the lender would require your proof of income with two years of federal tax returns, two years of W-2 statements, etc. Moreover, bank statements are also required to present your assets and prove to the lender that you have a sufficient balance to pay the down payment for the applied loan.

Types of conventional loans

The number of conventional mortgages depends on the type of mortgage option you choose. These loans are primarily divided into two:

Conforming conventional loans: These loans usually have a fixed rate and are usually set by the FHFA. These loans change annually and cannot be negotiated.

Non-conforming conventional loans: These types of loans do not fall under the guidelines of the FHFA and the lenders are free to set the amount. These loans usually include jumbo loans and depend on the borrower's financial situation. In addition, down payment rates may also be different compared to conforming conventional loans.

Note: Keep in mind that conventional loans are not be confused with FHA loans in Texas since they are backed by the government while conventional loans are not.

Am I eligible for conventional loans?

The main requirement for applying for a conventional loan is to have a high credit score. Since Texas USDA loans are not government-approved, they have stricter eligibility requirements compared to government mortgages. Therefore, even though they are easier to apply for, you may still face troubles due to your credit score or down payment requirements.

What are the loan limits for conventional loans?

A conventional loan heavily depends on a borrower’s credit score. Why does the score matter? Well, loans are usually high amounts given out by local mortgage lenders. Hence, they require proof of legitimacy. For conventional loans, a credit score of 620 or higher is required. In addition, down payments also depend on these credit scores. For example, a score of 720 or higher might be required to give lower down payments.

What are the down payment requirements for conventional loans?

For first-timers, getting a mortgage with a down payment as minimal as 3% might be possible. However, don’t expect it everywhere! It mostly depends on lenders in Texas, your financial situation, or the type of loan you are going for.

• For new home buyers or people with less than 80% income, the down payment requirement is 5%.

• Down payment also varies with the number of units. If the property that you wish to buy has more than one unit, your down payment requirement might go higher up to 15%.

• In addition, if you are buying a second property, a down payment of at least 10% is required.

• For adjustable mortgage rates, you should expect a down payment of at least 5%.

• For jumbo loans, down payments usually range from 20% to 40%.

Besides this, here are some other factors that affect the down payment requirement for conventional loans:

Credit score: As discussed earlier, credit scores heavily influence the rate of down payments. A score of 620 or higher is required to successfully apply for a conventional loan.

Debt-to-income ratio: A debt-to-income ratio refers to the percentage of income that is spent to pay off debts. To calculate the ratio, you have to first add up the monthly debt payments and divide it by your gross monthly income. For conventional loans, a 50% or lower DTI ratio is eligible for application.

Loan size: Buying the house of your dreams can be a huge dent in your pocket. While they may cost a fortune, it doesn’t mean that you have to give up on your dreams. This is why mortgages such as conventional ones can help a long way to finance the house of your dreams. However, when it comes to down payments, the loan size can be a great determining factor. Besides, the loan amount is subject to change each year and has been set to $647,200 for 2022.

Conclusion

Finding the perfect house feels like a dream. However, getting the perfect loan deal is the cherry on top! While it can be hectic at times, one should not lose patience! You can find a lot of mortgage lenders offering various interest rates and down payment options. Besides, before looking for potential lenders, you should always research and find the local FHFA limits.

Do not finalize the first deal you get! Keep your options open and look for other lenders as well. This will give you a good insight into various rates and help you make the right decision.