UTAH MORTGAGE PRODUCT

Conventional Loan Purchase

Conventional loans come in a variety of options and with excellent advantages for qualified borrowers.

Overview: Conventional Loans

Better Rates & Refreshingly Flexible

A conventional loan is a type of mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), Department of Agriculture (USDA) and the Department of Veterans Affairs (VA) and is typically fixed in its terms and rate.

However, conventional loans are commonly interchangeable with ‘conforming loans’, since they are required to conform to Fannie Mae and Freddie Mac’s underwriting requirements and loan limits.

The main benefits of a convention loan are:

Lower overall cost than many government products that require mortgage insurance.
Conventional loans usually require less paperwork and can be obtained more quickly than government insured ones.
No PMI with down payments of 20% or more.

ARM VS. fixed: Which should I choose?

A fixed-rate mortgage has the same interest rate through entirety of the loan. Your monthly payment of P&I (principal and interest) won’t change. A fixed-rate mortgage is one of the most popular types of financing because it offers stability and predictability for most peoples budget.

An adjustable-rate mortgage, commonly referred to as an 'ARM', is a home loan with an interest rate that can change periodically. This means that the monthly payments can go up or down. In general, the initial interest rate is lower than that of a fixed-rate mortgage. After the fixed-rate period ends, the interest rate on an ARM loan moves based on the index it’s tied to.

When deciding if a fixed or ARM rate is right for you, there are some questions that you need to ask yourself:
1. How long do I plan on staying in the home?
If you’re only going to be living in the house for a few years, it would make sense to take the lower-rate ARM. Your payment and rate will be lower, and you can build savings for a bigger home later on. Also, you’ll never be exposed to huge rate adjustments of an ARM because you’ll be moving before the adjustable rate period begins.
2. How frequently does the ARM adjust, and when is the adjustment made?
After the initial, fixed period, most ARMs will adjust every year on the anniversary of the loan. The new rate is actually determined by the index value around 45 days before the anniversary. But some adjust as frequently as every month. If that’s too much volatility for you, it might be better to go with a fixed-rate mortgage.
3. What’s the interest rate environment like?
When rates are relatively high, ARMs can make sense because their generally lower initial rates will allow you to still reap the benefits of home ownership. When rates are lower, you have a decent chance of getting lower payments even if you don’t refinance. When rates are relatively low, however, fixed-rate mortgages make more sense.
4. Can you still afford your monthly payment if interest rates rise?
On a $150,000 sing year ARM mortgage with 2/6 caps, your 5.75 percent ARM could rise to 11.75 percent, with the monthly payment rising up as well. Generally, when fixed mortgage rates are low, fixed mortgages will tend to be a better deal than an ARM, even if you plan to stay in your home for only a few years.

How do I qualify for a Conventional Loan?

Conventional mortgage borrowers typically make larger down payments than FHA borrowers, and they tend to have a more secure financial standing and are less likely to default. A larger down payment means lower monthly payments. Plus, with the ever-increasing mortgage insurance premiums on FHA loans, payments for conventional loans that don’t require private mortgage insurance can be much more manageable in comparison.

The major eligibility requirements include:

Credit Score. The minimum credit score requirement is typically between 620-640 depending on the the wholesaler that is used.

Income must be verified by reviewing your recent pay stubs, W2s and tax returns. Debt-to-income ratio cannot exceed 43%.

Bank statements and investments will need to be verified to ensure the you has sufficient assets to close. These funds must be able to cover a down payment with any associated closing costs.

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