The road to homeownership can prove to be quite a challenge, especially for first-time homebuyers. Not only does it involve wise and careful financial decisions, but it also demands comprehension of the different kinds of mortgages to come up with the most cost-effective deal that fits well within your budget and your source of income.
What is a conforming loan?
Simply defined, a conventional loan is any loan that is not by the government.
It is a general term that can be further narrowed down to its two types: Conforming loan and non-conforming loan.
The Federal Housing Finance Agency or FHFA sets a limit to loan amounts. When a loan is within this limit, it is called a conforming loan. Moreover, conforming loans also meet the funding standards imposed by two government entities, Freddie Mac and Fannie Mae, and are eligible for purchase by these two government-sponsored entities if the need arises. A non-conforming loan, on the other hand, does not abide by these limits.
Currently, the conforming loan limit is around $450,000. But, this can go higher in more expensive markets such as New York and San Francisco. The baseline for conforming loans is adjusted yearly to cater to the continually changing average price of homes across the United States.
Conforming vs. non-conforming loans
Non-conforming loans embrace a more extensive diversity of loan types than conforming loans; however, they have much higher interest rates in instances where less documentation is required. In case of large-sum or jumbo loans, applicants have to keep up with the stricter standards and hefty down payment to justify the size of the investment.
Lenders are more confident in issuing conforming loans because they are easier to sell in secondary mortgage markets. Also, Fannie Mae and Freddie Mac can ensure these loans, which allow banks and other mortgage institutions to accommodate more aspiring homebuyers.
Conforming Loan Guidelines
The prerequisites to availing a conforming loan in San Antonio are similar to the conventional loan requirements in Texas. In addition, interested loan applicants must follow specific guidelines to qualify. The most basic conditions include your debt-to-income ratio, credit score and history. Also, you need a down payment that is relative to the loan amount, and insurance coverage, if necessary.
- Debt-to-income ratio
The San Antonio conforming loan, or any conforming loan for that matter, may require a 41% debt-to-income ratio, or may be lower. This means that the total debts that you incurred, including the mortgage, must not take more than 41% of your monthly gross income.
- Credit score and history
As with most loans, a good credit score and history is essential to assure the lender of your paying capacity. To qualify for a conforming loan, your credit score must not be less than 620. Although, this depends on the requirement set by the mortgage company.
- Down payment
Most conventional loans will oblige you to pay somewhere between 10-20% loan-to-value ratio. However, first-time homeowners can take advantage of low-down payment options offered by Fannie Mae and Freddie Mac. These can go as little as 3% of the home’s purchase price.
Unless you pay 20% of the home’s value up front, you will be asked to pay for private mortgage insurance or PMI until you have covered less than 80% of your loan.
Is a San Antonio conforming loan for you?
Whether or not a conforming loan is a right choice for you depends on your ability to adhere to the guidelines and qualifications set. If you find yourself coming up short on any of the criteria, you can also consider government-guaranteed mortgages the like of VA, FHA, and USDA loans. These loans are affordable and usually entail a less rigorous application and approval process.
While homeownership is a very worthy goal, you must also make sure that your savings and income can handle the financial obligations that come with buying a home. Perform the market research necessary to make sure that you end up with sound decisions that will not cause you any trouble in the future. You can also ask for the professional opinion of in choosing which type of loan is right for you and your budget. Paying for a house is a huge responsibility. If you have to, think about it a hundred times before signing up for anything.