FAQ
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Pros: Why you should consider a conventional mortgage
- You have more choices in mortgages Conventional mortgages either come with fixed-interest rates for the full term of the loan, or Adjustable-rate mortgages (ARMs) which have an initial low fixed-interest rate and once the initial period is over, the interest rate will adjust every 6 months. Fixed-interest rate mortgages commonly come with 15-, 20-, and 30-year loan terms. This means your interest rate will remain the same for the length of the mortgage, and you’ll have to pay off the mortgage over the agreed-upon time. Adjustable-rate mortgages (ARMs) have an initial low fixed-interest rate during the introductory period of the loan. Once this introductory period is over, the interest rate will adjust every 6 months.
Fund fact: Your credit score impacts the interest rate lenders will offer you.
- You have more control over mortgage insurance, if you have to pay PMI, your PMI payments will automatically stop once your home equity reaches 22%. Home equity is the difference between the amount you owe on a property and the property’s current market value. To save even more on PMI payments, when your home equity reaches 20%, you can ask your lender to remove PMI from your mortgage fees. In contrast, if you get an FHA loan and make a down payment of less than 20%, you would be required to pay a mortgage insurance premium (MIP) for the entire length of your loan.
- You can borrow more money If your credit score is over 700 and you meet the other jumbo loan qualifying criteria, you can borrow up to $1.5M. If your credit score is above 740 and you meet the other jumbo loan qualifying criteria, you can borrow up to $3M.
Cons: Why a conventional mortgage may not be right for you
- Your credit score is below 620. The eligibility requirements for conventional loans are more stringent than government-backed loans. Conforming loans are sold to Fannie Mae or Freddie Mac soon after being created to help keep mortgages affordable for homebuyers. Once a Fannie or Freddie buys a loan, the lender can use the money from the sale to fund more mortgages. While this is for the greater good of all homebuyers, on an individual level, if your credit score is low, you may find it challenging to qualify for a conventional loan.
- You have a high debt-to-income ratio (DTI). Debt-to-income ratio is the difference between your gross monthly income and the total amount you need to pay toward debt each month. If you spent half your monthly income on bills and debt, your DTI would be 50%. Many mortgage lenders will not approve a conventional mortgage for homebuyers with a DTI higher than 43%. On the other hand, FHA loans can be approved for homebuyers with DTIs up to 50%.
Fund Fact: Homebuyers with DTIs up to 50% may also be eligible for a conventional loan with Better Mortgage.
- You have had past bankruptcies and foreclosures. The eligibility criteria for government-backed mortgages are more relaxed. As a result, past bankruptcies and foreclosures are forgiven much faster. Homebuyers with recent bankruptcies or foreclosures which would otherwise be approved may need to wait longer before a lender approves them for a conventional loan. And in some cases, the homebuyer’s loan may not be approved at all.
A conventional loan could be used for the following purchases:
- 1st home purchase
- 2nd home purchase
- Vacation homes
- Rental/Investment Properties
- Multi-Unit Dwellings
- Condominiums
- Planned Unit Developments
The VA funding fee is a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.
| If your down payment is… | Your VA funding fee will be… | |
|---|---|---|
| First use | Less than 5% | 2.3% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% | |
| After first use | Less than 5% | 3.6% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% |
Yes, Luis Tipacti is licensed by the state of California and is required by law to take a class once a year to renew his license. Every licensed official will have an NMLS number and their information is showcased on the Government’s official NMLS webpage.
Luis Tipacti NMLS# 281077
Just because you’re not a U.S. citizen doesn’t mean home ownership is out of reach. Lawful permanent or non-permanent residents can apply for loans just the same as citizens, no higher costs, fees, or interest rates require
When it comes to determining your mortgage rate, your credit score is a critical factor. Assuming nothing in a mortgage application changes except the credit score, someone with a score in the 680-699 range would have a mortgage rate approximately 0.399 percentage points higher than a person with a 760-850 score.
Mortgage rates are generally based on your credit ‘tier’ rather than your exact FICO score. So, lenders will look at the range in which your score falls and adjust your rate and fees accordingly.
While each lender is free to set its own rules, many will follow conforming loan credit tiers set by Fannie Mae.
A local mortgage lender can lend a more personalized approach, as most loan officers at local lenders live in the community where they work. Your loan officer might have fewer clients to keep up with, too. If you have a more complicated loan, this can play in your favor, as you’ll have easier access when questions pop up.
Going bigger isn’t always better, though. Although big banks are convenient and familiar, you’re likely to find yourself among thousands of other borrowers. With that, you might not find as personalized an experience as you’d like, or an overt willingness to help you through the process.
Investing And Building Equity
Think of it this way: Instead of paying your monthly rent to a landlord or corporation, you can start buying into your own home equity.
Improving Credit
As you maintain regular mortgage payments, your credit score will increase over time.
Greater Privacy and Control Over Your Living Space
Unlike renting, or even owning condos or townhomes, buying a house lets you have total control over your home.
Longer-Term Stability
According to the U.S. Census (Table A-4), homeowners are four times less likely to move in a given year compared to renters. That same study shows that only 4.9% of homeowners moved between 2018 to 2019, compared with 19.7% of renters.
Get a lower interest rate and monthly payment
As a borrower, you could potentially save thousands of dollars over the term of your loan when you lock in a lower interest rate.
Pay off your home loan early
Some borrowers are able to reduce the term of their loan by refinancing. If you are a borrower who has had your loan for a number of years, a reduction in interest rates can allow you to move from a 30-year loan to a 20-year loan without a significant change in monthly mortgage payments.
Lock in a fixed interest rate
Borrowers with adjustable-rate mortgages (ARMs) will often replace their loans with new ones that have a fixed interest rate. This is especially true when an interest rate adjustment period is approaching, and a lower fixed rate can be obtained by refinancing your existing loan.
Obtain funds for home improvements or repairs
Home equity is built through mortgage payments, increases in home values or a combination of both. As a borrower, you can do a cash-out refinance to access the equity you’ve built up. This money can be used for a variety of purposes — finance home improvements or repairs, pay off high interest debt or pay for large expenses such as medical bills, legal expenses, and college tuition.
Remove private mortgage insurance
With the exception of VA loans, as a borrower, you generally pay private mortgage insurance (PMI) when you finance more than 80% of your home’s value. In this situation, refinancing your mortgage may be an opportunity to remove this expense. This option is available to borrowers whose loan-to-value (LTV) is less than 80% because of a reduced loan amount, an increased home value, or both.