Conventional & Jumbo Mortgages
If you've got outstanding credit, reliable income, and want to escape paying for mortgage insurance for the entire life of your loan, a conventional mortgage may be the way to go.
You'll need one more thing: a down payment. Most lenders ask for 20%, but some go as low as 3% so they can compete with FHA loans.
If you live in an expensive housing market or want to purchase a larger home, you'll need a jumbo loan, which is a conventional mortgage for any house worth more than $484,350. In other parts of the country, such as the West Coast, this limit is larger, but here in Merrillville and the Chicago metro area, $484,350 is still the cutoff.
Most conventional loans stop at $484,350 because Fannie Mae and Freddie Mac won't guarantee loans that are any larger. This means you will need an even stronger financial profile to obtain a jumbo loan.
Conventional Mortgage Requirements
Requirements vary by the lender, but the stronger your credit the better. 620 is the lowest credit score most lenders are willing to entertain. And if you don't want a much higher mortgage rate, or the offer of a subprime mortgage, you'll want to get your score above 740.
If you're willing to pay for private mortgage insurance until the loan is 78% paid, you can provide a smaller down payment. But if you put 20% down you can avoid PMI altogether, and you present lenders with a far more attractive financial picture. Keep in mind your debt-to-income ratio should be no higher than 50%, and most lenders prefer to see it under 45%. DTI requirements do offer an advantage over other loan types, which tend to have a lower DTI threshold.
Lenders also like to see two years of steady employment, an income high enough to support the mortgage you're asking for, and a healthy cash reserve. And unlike an FHA loan, your down payment can't come from grants or gifts from family members, which means you'll need to save up that money yourself.