Conventional Loan Program

Primary, Vacation & Investment Home Loans

Conventional mortgages often require less documentation than FHA loans or VA loans, which could speed up the overall processing time.

If you're in the market for a home, Clear Lending offers the Conventional Loan Program ideal for homeownership and one of the most popular types of loans. There are certain requirements to get approved for a conventional loan and distinct benefits that go with it. There are also a few drawbacks. If you need information on a conventional loan program in Houston, read on!

Eligible Properties

There are several types of properties eligible for conventional loans. Single-family homes used as the primary residence, second homes, and rental properties are eligible, including townhomes, condominiums, and manufactured homes. Ineligible properties are mobile homes, cooperatives, properties held in a community trust, and 2-to-4-unit properties with accessory units.

Underwriting Methods

The borrower's information and the property information will be run through an Automated Underwriting System (AUS), which will return an “Approve/Eligible” or “Accept/Eligible” status recommendation. However, when a transaction with a borrower without a credit score contributes less than 50% of qualifying income, the findings may be acceptable subject to certain conditions set by the lender. The AUS will also note the appraisal requirements in its findings.

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Credit Score

Conventional loan programs in Houston and anywhere else have set credit score thresholds that borrowers must meet. These can vary based on the type of loan and how much the borrower pays down. For example, a purchase of a regular home or condo requires a minimum 620 score, but a purchase of a manufactured home requires a 660.

Down Payment

Homebuyers who are financing with a conventional mortgage should try to pay down as much as possible. If they can get the home's loan-to-value (LTV) ratio under 80%, they won't need to pay for private mortgage insurance. However, the borrower may only pay 5% or even 3% down in some cases and still get approved.

Terms

Terms, which is the length of time a borrower finances a mortgage loan, vary on conventional mortgages. The borrower can choose 10, 15, 20, or 30 years as their term, with a payment due monthly. The minimum term is 120 months for Fannie Mae and 180 months for Freddie Mac. The interest rate is figured into each payment. Conventional loans offer fixed interest rates, meaning the interest rate stays the same for the life of the loan. Your interest rate will, in part, be determined by your credit score. The higher your score, the lower your interest rate.

Income Verification

Lenders will require that a borrower allows their income to be documented. For wage earners, this will include pay stubs, W-2s, and confirming with their employer thru a written verification of employment. For self-employed borrowers, income verification will require the last 2 years of income taxes, personal 1040s, business 1065, 1120, or 1120s in the event business income is reported separately. Employment verification will require third-party verification from a CPA, from a licensed Tax Preparer or bookkeeper.

Maximum Financed Properties

There is a maximum of ten active mortgages from a single borrower.

Maximum Loan Amounts

Conventional loans do have maximum amounts that can be loaned on a property. These can vary based on the state the property is in. In Texas, the max loan amount as of January 1st, 2023, for a single-family residence or 1 unit house is $766,550. Then 2 units $991,500, 3 units $1,186,350 and 4 units $1,474,400.

Escrow Accounts

An escrow account will be established on every loan, and portions of the homebuyer's monthly payment will go into escrow to cover expenses such as taxes and insurance. That is unless the loan amount represents 80% loan to value, in which case the borrower may elect to pay taxes and insurance separately.

Conventional vs FHA Home Loans

Conventional loans and FHA home loans offer similarities and differences. There are down payments, certain credit score minimums, required of both. However, FHA loans work with borrowers with a 500-credit score and above, whereas conventional loans want scores at 620 or above. Closing costs are about the same. FHA loans are insured by the Federal Housing Administration, while conventional loans are insured by PMI.

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Consider some of the Conventional Guidelines:

Minimum Credit Score: 620 under specific circumstances.
Minimum Down Payment: 3% for Primary Homes, 10% for Secondary/Vacation Homes and 20% for Rental/Investment Homes.
Maximum Debt-To-Income Ratio: Determined by Automated Underwriting System (AUS) but never over 50%.
Third Party Maximum Contributions: On Primary and Secondary Residences - 3% contribution if loan down payment is less than 10%, 6% if loan down payment is 25% to 90%, and 9% if the down payment is over 25%.
On Investment/Rental homes maximum is 2% regardless of down payment.

Don't wait any longer, and find out how much loan you can get Pre-Approved.

Whether you are considering purchasing or refinancing an existing Conventional mortgage loan, Clear Lending can help you. Complete our secure and encrypted Pre-Approval Form online, and we will contact you right away to review the best options for you.

Not all applicants will qualify. This advertisement is not an offer for an extension of credit. Please meet with a licensed loan originator for more information as programs are available only to qualified borrowers. Programs rates, fees, terms, and programs are subject to change without notice. Not all loans, loan sizes, or products may apply. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet loan-to-value requirements, and final credit approval. Approvals are subject to underwriting guidelines and program guidelines and are subject to change without notice. Some restrictions may apply.

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