Daryle Evans Mortgage Lender Vice President Mortgage Loan Originator, NMLS # 264599

How Conventional Loans Work

A conventional mortgage or conventional loan is any type of home loan that is not offered or secured by a government entity. Conventional mortgages are available through private lenders like banks, credit unions, and mortgage companies. Some conventional mortgages qualify to be guaranteed by one of two government- sponsored enterprises, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Potential borrowers need to complete an official mortgage application, supply required documents, credit history, and current credit score. Conventional loan interest rates tend to be higher than those of government-backed mortgages like FHA loans, have fixed interest rates and have stricter lending requirements. However if you put down less than 20% on FHA loans you typically are required to have mortgage insurance which can make a FHA loan interest rate comparable to a conventional loan. There are government agencies that secure mortgages which offer low or no down payments and no closing costs. These would be the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and the USDA Rural Housing Service. However, there are requirements that borrowers must meet to qualify for the last two programs.

Conventional vs. Conforming

Conventional loans are often falsely referred to as conforming mortgages or loans. There can be some overlap but there are two are distinct categories. A conforming mortgage is one that meets the terms and conditions of Fannie Mae and Freddie Mac. The biggest criteria that must be met to be a conforming loan is it must be under a certain dollar limit which changes from year to year. So while all conforming loans are conventional, not all conventional loans qualify as conforming. A jumbo mortgage is a conventional mortgage but is not a conforming mortgage because it surpasses the amount that would allow it to be backed by Fannie Mae or Freddie Mac.

Required Documentation

Properties are never 100% financed lenders are looking to see if you can afford the monthly mortgage payments usually not to exceed 28% of your gross income and that you can handle the down payment on the property. 1. Proof of Income • These documents will include but may not be limited to: • Thirty days of pay stubs that show income as well as year-to-date income • Two years of federal tax returns • Sixty days or a quarterly statement of all asset accounts, including your checking, savings, and any investment accounts • Two years of W-2 statements • Borrowers also need to be prepared with proof of any additional income, such as alimony or bonuses. 2. Assets You will need bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence and some cash reserves. If you receive money from a friend or relative to help with the down payment, you will need a gift letter which certifies that these are not loans and don’t have to be paid back. These letters will often need to be notarized. 3. Employment Verification Lenders will make sure they are loaning only to borrowers with a stable work history. In addition to pay stubs they may also call your employer to verify that you are still employed and verify your income. If you have recently changed jobs, previous employers may also be contacted. Self- employed borrowers will need to provide a significant amount of additional paperwork concerning their business and their income. 4. Other Documentation You will need a copy of your driver’s license or state ID card and will need your Social Security number and your signature, allowing the lender to pull your credit report.

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