Understanding the basics of conventional mortgage loans.

The New Agent Blog strives to provide the education and resources that new agents need when they begin their real estate career. In an effort to achieve this educational purpose, expert professionals from other real-estate related industries are invited to share their knowledge on specific topics and issues. Michael Davis is the Assistant Vice President, Mortgage Originator with Genesee Regional Bank in New York, and has been in the mortgage industry for over 16 years and brings knowledge and experience to all aspects of the mortgage process. For further clarification or education on this or any other mortgage topic, he can be reached at MJDavis@grbbank.com.

When helping your clients purchase a house, there are many mortgages to choose from. This week’s mortgage topic: conventional mortgages.

What is a Conventional Mortgage?
A conventional mortgage is the most basic “vanilla” mortgage loan that is available. What I mean by vanilla is that for a conventional mortgage, generally the buyer must have very good to excellent credit, a decent down payment, and a solid “debt to income ratio.” The debt to income ratio may have some flexibility, and is typically also based on the buyer’s credit score and how much of a down payment the buyer has. Conventional mortgages account for about 70% of all mortgage loans. One of the biggest advantages to conventional mortgage loans is that the monthly mortgage insurance (also known as PMI) will end once there is 20% equity established in the home, whereas some government loans have PMI for the duration of the loan.

What is the Required Down Payment?
To get the best conventional mortgage interest rate out there, buyers should aim to have 20% of the home’s purchase price to use as their down payment. In addition to having a great interest rate, another advantage to putting 20% down is the fact that you will not be required to have monthly mortgage insurance (also known as PMI), which is often times required when putting less than 20% down. That is not to say that you cannot get a conventional mortgage with a smaller down payment, because you can! Most lenders will allow for a 5% down payment, and in some cases 3% down payment programs are available.

Can the Buyer Get Seller Concessions?
Looking for the seller to pay a portion of the buyer’s closing costs? Most conventional loans allow up to 3% seller concessions with 5% down payment. Some lenders may allow 6% seller concessions when putting 10% down.

Overall, conventional mortgage loans are a great option for buyers who have taken care of their credit, have money saved up for a down payment, and have managed a good debt to income ratio.