A conventional loan is basically a loan that is not insured by the federal government. This means that if you aren’t able to put a least 20% down, you will be required to pay for Private Mortgage Insurance or PMI for short. PMI is a fee that is paid by the borrower to insure the lenders risk of that borrower defaulting on the loan.
Conventional Loans also offer the best financing options including a low rate and lower PMI. This can provide you with a lower monthly payment as well as the least amount of resistance during the mortgage process.
Down Payment Requirements
The minimum down payment for a Conventional Loan is 3%. However, qualifying for a 3% down payment is quite restrictive from a credit and debt ratio perspective. This is why most conventional borrowers put down 5% or more.
Conventional loans also have strict policies when it comes to getting a gift for your down payment. These policies state that the borrower must contribute at least 5% of their own funds towards the down payment unless the gift will be for down payment of 20% or greater.
Mortgage Insurance Requirements
Conventional loans require that you pay PMI on a monthly basis if your down payment is less than 20% of the purchase price. The PMI monthly payment will be determined by the amount you put down, the term of your mortgage and your credit score. It’s calculated based on a small percentage of your loan amount, usually between 0.27 and 1.1%, divided by twelve.
You’re buying a $150,000 home with a 5%, or $7,500 down payment. This leaves us with a loan amount of $142,500. We’ll assume the PMI is 0.67% which would give us the following PMI Calculation;
PMI = $142,500 x 0.67% = $954.75 / 12 = $79.56 per month
You won’t know your PMI percentage until you get pre-approved. As stated earlier, it will be based on your credit score, your loan to value, and the term of your mortgage. The monthly PMI payments automatically cancel when you pay your loan down to 78% of the original loan amount.
Credit Score Requirements
The minimum credit score for a Conventional Loan is 660 but can sometimes go lower with compensating factors such as a high down payment, large cash reserves, or a low debt ratio.
Debt Ratio Requirements
The maximum debt ratio for a Conventional Loan is 45% with no exceptions.
The maximum sales concession for a Conventional Loan is 3% with less than 10% down and 6% if you put more than 10% down.
Conventional Home Purchase Loans - Minimum 3% Down
Looking for a conventional loan to help you purchase your dream home? Michigan Mortgage Solutions can provide you with a Conventional Home Purchase Loan, perfect for those with good credit. With a minimum down payment of 3%, this loan allows you to buy the home you’ve always wanted without putting too much money upfront.
Keep in mind that Conventional do require monthly mortgage insurance if the loan amount exceeds 80% of the purchase price. However, there is no upfront mortgage insurance and the monthly is typically cheaper than FHA mortgage insurance. On top of that, the mortgage insurance on Conventional loans become cancelable once the loan reaches 78% loan to value.
Conventional Home Purchase Loan Highlights
Michigan Mortgage Solutions has you covered with our Conventional Home Purchase Loan. This loan allows homebuyers with a good credit profile to purchase a home with as little as 3% down. Plus, conventional loans provide low fixed rate options and also have the advantage of cancelable mortgage insurance once the loan reaches 78% loan to value.
So if you’re looking for some extra peace of mind when it comes to your mortgage, a conventional loan is the way to go! Contact Michigan mortgage Solutions at 248-963-1894 or click the Purchase Button below to get your low rate Conventional Home Purchase Loan Today!