A conventional loan is a bank statement mortgage that is not insured by the government. It is backed by a private lender as an assurance that the lender will get their money back.
Most homeowners prefer conventional loans over other types of loans. Almost all new home buyers use conventional loans. The main reason for that is that they are very flexible.
They are, however, more difficult to qualify for than other loans because a lot of risk falls on the lender. Conventional mortgage loans are a good idea if you have good credit.
This, however, does not mean that people with bad credit cannot qualify. You may qualify for the loan depending on the lender you choose and your circumstances.
Benefits of Conventional Loans
There are plenty of reasons why bank statement mortgage loans are so popular. The following are some of their benefits
- Fast processing
- Low-interest rates
- Low Private Mortgage Insurance (PMI)
- Diverse options for down payment
- Flexible term lengths
Types of Conventional Loans
There are two types of conventional loans; Conforming conventional loans, and non-conforming conventional loans.
Freddie Mac and Fannie Mae came up with a set of rules that determine what is considered a conforming conventional loan and what is not.
One of the most important rules is the loan limit. The limit for one-unit properties is called the baseline.
The maximum amount that one can borrow for conforming conventional loans is adjusted annually depending on the changes in housing prices.
Non-conforming conventional loans are those conventional loans which surpass the loan limit. Non-conforming conventional loans are also known as jumbo loans.
To qualify for conventional bank statement mortgage loans, you first need to find the right lender for your needs. If you are shopping for a new home, you must take your time to research and find the appropriate lender for your needs.
They will require you to have basic documentation like bank statements, pay stubs, and tax returns.
They will use your financial documents to find out if you have a reliable source of income and to assess your ability to make monthly payments.
You must make a down payment. Even though the lenders may allow your down payment to be as low as three percent, you should put in more to avoid paying PMI. Giving a high down payment reduces your monthly payment.
You must provide your lender with proof that you have a stable source of income. Your lender will take into account your other monthly expenses such as monthly debt payments and bills.
They may require that your mortgage payments for every month do not exceed a certain percentage of your gross income. The key is to find a lender that understands your needs.