Conventional Loan Guidelines

Anyone who has ever applied for a mortgage knows there are minimum loan requirements they must meet to qualify. And while we’d love to help any and everyone who walks through our door, those guidelines are standard and specific, and lenders can’t bend them or make exceptions.

The government created these conventional loan guidelines to protect the lender, borrower, and investor, and enforces them. For lenders, the guidelines help to prevent them from approving loans that are too high risk. For borrowers, the guidelines help to prevent you from taking on a loan you can’t realistically pay back.

Since we primarily work with conventional loans here at Mortgage Specialists, keep reading to learn what is required to qualify.

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Conventional loans are a little harder to qualify for than their government-insured counterparts like FHA and VA loans. To qualify, you will need to meet all the minimum requirements below:

Credit Score

Borrowers need a minimum credit score of 620. And while that’s the minimum, keep in mind that with a higher credit score, you can obtain a more favorable interest rate.

Income

You will also need proof of steady employment for the past two years and generally a debt-to-income ratio of 43% or less.

Down Payment

A down payment of at least 3% is required for first-time home buyers and 5% for everyone else. If you plan to put less than 20% down, expect to pay for private mortgage insurance (PMI). Your PMI fees can add up to .10-1.95% of your loan balance each year.

As we touched on above, these are the minimum requirements. If you take the time to raise your credit score, pay down debt, or save money for a larger down payment prior to purchasing, you will likely qualify for a much better interest rate. And trust us, you want a better interest rate – it can save you tens of thousands of dollars over the life of your loan.

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But, What If…?

Over the years, we’ve been approached by many people who believe they should qualify for a conventional loan, but do not meet at least one of the guidelines above. We want to reiterate that in order to qualify for a loan, you must meet all minimum requirements and lenders don’t create these rules nor are we able to make exceptions.

Some situations that we’ve encountered in the past include:

Self-employed borrowers who haven’t claimed much money on their tax returns and didn’t meet the minimum income requirements for a loan.
Borrowers who have filed for bankruptcy and whose credit no longer qualifies. In these situations, if the minimum credit score isn’t met, it doesn’t matter how much income the borrower has – they can’t qualify for the loan.
Borrowers who don’t have a down payment but have great credit. Unfortunately, we can’t waive the down payment.
Borrowers who have a lot of assets but no income.

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Let’s Walk Through Some Examples…

Say a borrower comes to us with a credit score of 619, a good debt-to-income ratio, and enough money for a down payment. Since a credit score of 620 is required, a pre-approval cannot be issued.
Now it gets a little trickier – if a borrower comes to us with a 621 credit score (minimum required 620), a debt-to-income ratio within the accepted range but on the higher end, and enough money for a minimum down payment, we still may not be able to issue a pre-approval. If the borrower is able to put down more money than the minimum down payment, the chances of pre-approval go up substantially.
For our last scenario, if a borrower comes to us with a credit score of 800 (minimum required 620), no income at all, and millions of dollars in the bank, we may not be able to issue a pre-approval since they don’t meet the minimum debt-to-income ratio.

To Wrap it Up

Again, we want to reiterate that in order to qualify for a loan, you must meet all minimum requirements and lenders don’t create these rules nor are we able to make exceptions.

If you’re thinking about buying a home in the next year or two, we encourage you to reach out to us now. Then, we can run your information to see what you could apply for now, and work with you to make sure you’ll be able to get the loan you want when you’re ready to buy. Give us a call at 402-991-5153 to set up an appointment today.

Ready to start the mortgage process? Our online application takes anywhere from 5-20 minutes to complete and we can have you pre-approved for a loan in just a few hours.