Fannie Mae has made it easier to get a conventional loan and still only put 3 percent down on the home. This is good news for those homebuyers that would otherwise have to take an FHA loan and pay the hefty mortgage insurance fees. You might think that conventional loans are harder to qualify for and if you don’t have perfect credit that you will not qualify, but you might be pleasantly surprised to learn that many people are eligible for this loan.
While it is true that the housing crisis took a toll on lenders, requiring them to expect higher credit scores in order to get approved for a conventional loan, the guidelines are becoming a little easier. For example, for the 97% LTV loan, a credit score of at least 620 is typically allowed. What makes this possible is the presence of the private mortgage insurance that you will pay. The presence of this insurance makes the loan less risky for the bank because they have a guarantee if you were to default on the loan. If you put down 20 percent on the home and defaulted, there is no private mortgage insurance, which means the bank is out of luck if you default, which is why the lower credit scores are being accepted for this fairly new program.
Down Payment Funds
Another benefit of the 97% LTV loan is the ability to get the down payment funds as a gift. There are no guidelines regarding how much of the money has to come from you – it will be up to the individual lender. This is just like the FHA loan, which means that you can have the money gifted, get the conventional loan, and eliminate PMI once you hit 80% LTV down the road, saving you much more money in the long run.
The debt-to-income ratio for the 97% LTV conventional loan is fairly forgiving as well. You can have a debt ratio as high as 43 percent on the back end. This means that your mortgage, insurance, taxes, and private mortgage insurance in combination with your other monthly obligations cannot be more than 43 percent of your gross monthly income. Of course, the higher your credit score is the more lenient the lender will be with your debt ratio. If one lender turns you down for a debt ratio that is too high, consult with another – there are many choices out there.
First Time Homebuyer
The biggest factor in qualifying for the 97% LTV Conventional loan is that you are a first-time homebuyer. This program was created to make it easier for everyone to purchase their first home since the down payment was typically the thing that stopped many people from owning a home. Once you own your first home, coming up with the down payment for a subsequent home is easier thanks to the equity you have in your first home.
The 97% LTV Conventional loan is a great option for people that do not have a lot of money to put down or those that want to save their assets to use as reserves for the future. It does not carry a much higher interest rate than most conventional loans and the PMI can be cancelled in the future, once you get the LTV down below 80%. It is a great way to have the home you want without forcing yourself to deal with financial issues as a result. You may have to search a little bit to find a lender that will offer the loan, but don’t give up because they are out there.Click to See the Latest Mortgage Rates»