Buying a home is one of the most important investments that a person ever makes.
Many people choose to take a government tied loan. These loans are popular because they allow people with a few blemishes on their credit to attain a home loan. The downside to these loans is that they are subject to the rules of government agencies such as the Federal Housing Authority, Federal housing administration, and the Department of Veterans Affairs.
A conventional home loan is free from these government regulations. They are very popular among home buyers that have a stable income, good credit, and a down payment ready. CPN Numbers is a mortgage broker firm in Florida that specializes in helping buyers obtain a conventional home loan in Florida. The following paragraphs will discuss what a conventional loan is and explain conventional home loan requirements in the state of Florida.
What is a Conventional Home Loan in Florida?
A conventional loan is a relatively easy concept to explain. It is a loan that is not insured or guaranteed by any government agency in any way. These loans offer flexibility that government tied loans cannot. A conventional loan is usually fixed in terms and rate. This offers the buyers more freedom in many critical ways. Lenders are willing and able to negotiate terms because they are not bogged down by government rules and regulations.
Benefits of Going the Conventional Route
As stated before; a conventional loan offers more flexibility. More flexibility can benefit the home buyer in a few ways.
- Less Hurdles to Jump Through
A conventional loan cuts down on the complications that can, and do, arise during the normal lending process. There are much fewer regulations which often slow the process down, this is not ideal for buyers or lenders. A conventional loan is easier for the lenders as well. They do not have to deal with government agencies like FHA or the veterans administration. A conventional loan is a great route for an enthusiastic or impatient buyer who has a stable history.
A government backed loan is usually a 30-year loan. Each payment includes payment to the principal of the loan, real estate tax, interest, and mortgage insurance. A conventional loan is more flexible on these terms. They typically allow for the buyer to vary the years, interest rate, etc.
- Faster Equity
A conventional loan usually calls for a higher down payment. This is not usually a sticking point for borrowers because these loans are designed to serve buyers that are financially stable. The larger down payment actually benefits the buyers because it increases the equity in the house immediately. This means that as soon as the buyer moves in their investment is already paying off.
- Mortgage Insurance
Mortgage insurance is a charge that allows lenders to recoup some of their money if the buyer defaults. FHA mortgage insurance, for example, is charged at closing and as a fee that is included in the loan every month. Typical conventional loans do not require mortgage insurance, especially if the down payment is 20% or more. When they do they are usually billed as a monthly premium instead of an upfront cost.
- Loan Limits
Loan limits are limits placed on the amount that a lender will loan a buyer. The FHA places a loan limit based on real estate prices in the surrounding area. If you want to qualify for a higher loan for that area the buyer would have to increase their down payment. Conventional lenders often put limits on how much they will lend but they are often less strict than government backed loans (more on that later).
A conventional loan’s flexibility is a big selling point for home buyers that want to make sure they obtain the best loan for their needs. They are a form of ‘reward’ for people that are able to keep their financial life stable.
- Conforming or Nonconforming Loans
Conventional loans fall into one of two types; conforming and non-conforming. Conforming loans fall at or below the lender’s loan limit. Nonconforming loans, also known as jumbo, are loans that are above the lender’s limits.
Lenders do set some limits on conventional loans, but there is always wiggle room. Lenders will still give loans above the limit. These types of loans are called ‘jumbo’ loans.
How do I Know if I Qualify For a Conventional Loan in Florida?
- You have chosen a beautiful home in the sunshine state and you want to get the best loan that you can. At this stage it is important that you ask the question; What are conventional home loan requirements in Florida? The following information is meant to give a better idea of the requirements. It varies for each home buyer and contacting a Florida mortgage broker, such as CPN Numbers, can help you determine if you may qualify.
- Conventional loans are flexible but they typically have strict guidelines. Most lenders request that Borrowers have a credit score of 680 and higher. This number varies by lending institution. This disqualifies all but the most stable and dependable of applicants. Typically lenders request a down payment of anywhere between 5-20% of the purchase price. These guidelines help home buyers in Florida know what they have to work for if they can’t immediately qualify.
What to do Next
The first step to obtaining a home loan is to prepare.
- Credit Score
First, ensure that you are a good candidate for a conventional loan. Ask your lending institution what their minimum borrowers’ score is and ensure that your credit score falls within the acceptable range. It is advisable to identify what your credit score is with each of the major agencies. The last thing that a home buyer wants is a surprise. Knowing your credit score will give you confidence and peace at the beginning of the process.
- Down Payment
The next thing to do is get the down payment ready. Conventional loans require extensive down payments. Before applying for the loan that down payment should be complete and ready to go. The faster you fulfill the lender’s requirements the faster you will have a new home.
- Control Your Debt
Lenders pay close attention to a buyer’s debt to income ratio. This is a tool that enables lenders to determine what percent of their income goes directly to debt repayment. A large debt to income level is unattractive to lenders because it shows that the buyer is potentially over their head in debt. Most lenders prefer the buyers’ debt to income ratio to be 30% or lower. This factor also varies from lender to lender. It is good practice to ask the lender this question before submitting a conventional loan application.
- Other Factors
There are a few factors other that may disqualify a potential home buyer from obtaining a conventional loan for a home.
A buyer must be at least two years removed from a bankruptcy to qualify for a conventional loan. Also, if the buyer was 30 days or later on a mortgage payment in the previous 12 months then they are disqualified.
Knowing these facts may make the loan application progress easier. Additionally, if you find that you are not eligible for a conventional loan, these factors help you know what you must do to become eligible.
A potential home buyer must do their due diligence when searching for a home. They must ensure that they find the right house, in the right neighborhood, with the right schools. The type of loan that you buy that perfect house with is just as important. A less than optimal loan can saddle you with years of unwieldy, unnecessary debt. A conventional loan offers flexibility because lenders are not bound by the same rules that they are under government tied loans.
This gives homeowners flexibility in terms and rates. They do not have to be the usual 30 years, conventional home loans can be for 20 or 40 years or in between. This makes it easier for a home buyer to get the payment they want. A conventional loan is often a better investment because it gives the buyer instant equity. CPN Numbers can help you find the Conventional home loan that fits your needs.