Your credit score is the single most important part when applying for a conventional home loan. Fannie Mae requires a borrower to have a credit score minimum of 620. If your credit score does not meet 620 you will find conventional home loan approval difficult. Fannie Mae and Freddie Mac are the two largest financial institution in American making them the standard when it comes to conventional loan guidelines. These two entities purchase home loans from other financial companies but when loans do not follow the Fannie Mae or Freddie Mac guidelines the home loan can not be processed.
Conventional home loan lenders will need you to provide your living history for the past two years along with verifying your identity. This ID can include a driver’s license or a Social Security card. You must also provide your work history and past salary through pay stubs. These requests will allow your home loan lender to verify your past and current income. Tax returns will also be requested. Self employed individuals will typically need to provide lenders additional information, such as tax returns or profit-and-loss statements. You must have the income you claim to have in order to purchase the home.
Your gross monthly income must fall within certain percentages of your monthly mortage payment and monthly debt in order to qualify for a conventional home loan. Fees such as your home payment including home taxes and home owners insurance must not exceed 28 percent of your gross monthly income. When combining your home mortgage payment with other monthly payments such as your car loans, student loans and credit cards these must not exceed 36 percent of your monthly gross income.
The recommended standard down payment of conventional loans is 20 percent toward the home total. There are many ways around this standard if you are unable to provide 20% down. One potential way is by purchasing mortgage insurance, which will be added to your monthly mortgage payment until the amount you owe on the home is less than 80 percent. The other way around a 20 percent down payment is to go through another loan program like a FHA loan or possibly an VA home loan which requires smaller down payments or no down payment at all.