When you get a mortgage, you are borrowing a specific amount of money from your lender for a set amount of time. If everything goes well, you will gradually pay back that money, with interest, in exchange for having complete ownership of your home.
Because a mortgage is typically for a large amount of money, lenders don’t want to lend their money to just anyone. Generally, they will make sure that you have:
- A good credit rating
- A consistent income
- A certain debt-to-income ratio. This is the percentage of your monthly income that you spend on other debt you have, such as a student or car loan.
- A minimum down payment. The amount you need depends on the price of your home and the lender’s requirements.
Such mortgages are called conventional because the borrowers must meet conventional, or historically standard, requirements to get their loan.
Why Get a Conventional Home Loan?
There are a number of reasons why you would want a conventional home loan:
- For borrowers with higher credit scores, a conventional loan may be a great fit.
- Since you tend to need a bigger down payment for a conventional home loan, you can build up your equity more quickly than for other types of mortgages.
- Having a 20% down payment also means you don’t have to buy private mortgage insurance. Think of the money you can save with one less payment every month!
How You Can Get Started
If you think a conventional home loan is right for you, what is your next step? You should:
- Review your credit report. Sure, mistakes happen, but these mistakes can lower your credit score, which can affect your conventional home loan application. Also, knowing your credit score will help you know if you need to fix your finances before applying for a mortgage.
- Start saving for a down payment. To avoid paying private mortgage insurance, you should save 20% of the purchase price. Also, the larger the down payment you have, the better your chances are of qualifying for a conventional home loan.
Call a Shamrock Financial Loan Officer to find out any other steps you can take to improve your finances and choose the options are right for you.