Here are some of our most commonly asked questions when it comes to conventional mortgage financing:
Which Documents Do I Need for a Conventional Mortgage?
- Copy of driver’s license
- Two years' full tax returns - all pages and all schedules
- Two most recent pay stubs with year-to-date pay
- Two most recent asset statements - all pages with full transaction history
- Copy of your mortgage statement, if you currently own
- Contact information for your insurance agent
- Probably a bunch of other documents, too
How Much Can the Seller Pay Towards My Closing Costs?
Typically, the seller can pay 3% of the sales price towards closing. If you put a down payment over 10% they can pay up to 6% towards your closing. This is assuming that your home purchase is for a primary residence. Investment properties are capped at 2% allowable seller-paid closing costs.
None of the seller credits can be used towards the down payment. The down payment needs to come from your own funds and/or gifts.
What Types of Homes Can I Purchase With Conventional Financing?
Conventional loans allow you to purchase single-family homes, condos, investment properties, townhomes, lofts, and second vacation homes.
Pretty much anything that is a standard housing type in your area. You would, for example, have difficulty financing a log cabin in Los Angeles because that is clearly not endemic housing stock to the LA market.
Will I Have Mortgage Insurance?
Yes (usually), unless you put 20% down.
There are conventional purchase programs without mortgage insurance. However, these mortgage programs are typically designed for low or moderate-income families and are used to satisfy federal Community Reinvestment Act requirements oft-leveled on big banks.
This includes monthly mortgage insurance, financed mortgage insurance or lender paid mortgage insurance.
With that said, the amount of private mortgage insurance (PMI) you will pay is wholly based on the risk your mortgage presents to the bank.
Credit scores on the lower end of the conventional mortgage financing spectrum will increase your monthly outlay on PMI. Same for debt-to-income ratios that bump the allowable 45% that Fannie Mae and Freddie Mac prefer.
Should I Get a Home Inspection?
Yes, it’s always a good idea to get a home inspection before you purchase a home. That way you know right away if there are any issues with the property you are considering purchasing.
It is also one of the most effective purchase price negotiation tools. Problems might not deter you from the property, but they can net you a sweet price reduction if you play your cards right.
How Long Does It Take to Purchase a Home?
The normal turn time for a purchase is about 30 days, although the 2015 federally (CFPB) mandated disclosure guidelines may extend the time needed to close.
This 30-day window also assumes you have all your documentation available, provide accurate and verifiable information on your mortgage application, and remain diligent in honoring the additional documentation requests that, inevitably, come from underwriting.
It also helps if you schedule your appraisal as quickly as possible. Upfront.
How Is My Interest Rate Determined?
The interest rate you qualify for is based on the risk you present. That risk level is determined primarily by the following factors: credit scores, down payment, type of loan, mortgage insurance, or no mortgage insurance, and the current bond market.
All these factors combined play a role in the interest rate you qualify for.