For the Right People, Conventional Mortgage is Best

Conventional Mortgage is Best

For people that meet certain requirements, the conventional mortgage loan can be the best way to purchase a home. It is important to understand what the requirements are and to see if you fall in the conventional loan category.

Credit score

While it is possible for people to get approved for a conventional loan with a score of 640, they would be better off pursuing an FHA loan. It financially makes more sense. People with high credit scores, usually above 740, are better served by the conventional loan. Why is this so, you may ask? Because of private mortgage insurance. Look at the following examples and see how private mortgage insurance increases with lower credit scores.

Credit Score Private Mortgage Insurance Rate (PMI) Mortgage Amount PMI Monthly Payment
743 0.76% $225,000.00 $142.50
641 1.20% $225,000.00 $225.00

The chart illustrates that the lower credit score commands a much higher PMI rate, adding over $80 to the monthly mortgage payment. In 6 years, that is $5,760! In this situation the borrower would be better off putting more money down on the home or waiting until their credit score improves.

Improving Credit Scores

Thankfully, it is possible to increase credit scores with a bit of time and the right actions.

  • First, make sure to pay every bill on time each and every month.
  • Second, do not close out any existing loans, especially credit cards.
  • Third, pay down credit card balances but leave the credit card open. The available credit on charge cards can drastically increase credit scores.
  • Fourth, don’t let any account go to collection status.
  • Fifth, do not charge more on a credit card than the available limit. Going over the limit on a credit card can drop a score by 50 to 100 points.

If you have a credit score of 720+, or you can reach that score within a few months, then a conventional loan could be your best option. It is also important to remember that you will need a 3%-5% down payment as well.

Contact us below or apply online to see if you qualify for a Conventional Mortgage!
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Filed under: Conventional Loans, Minnesota Blog

Luke Skar

Luke Skar is the web developer and content strategist for Inlanta Mortgage in Madison, serving Wisconsin, Illinois, Minnesota and Florida. Guided by his 12-plus years of various mortgage marketing experience, Luke provides top-quality SEO services, effective social media management, and web development and maintenance. Luke’s career in the mortgage industry began back in 2001, as a loan processor. After becoming a loan officer for a number of years, Luke is now the sole owner/operator of madisonmortgageguys.com. To ensure that all the information he posts is fresh, accurate, and up-to-date, Luke relies on the knowledge which his years of dedication to keeping up with the constant change that the mortgage industry provides.

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