Special Considerations for a Conventional Mortgage or Loan
- Thirty days of pay stubs that show income as well as year-to-date income
- Two years of federal tax returns
- Sixty days or a quarterly statement of all asset accounts, including your checking, savings, and any investment accounts
- Two years of W-2 statements
2. Assets
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence, as well as cash reserves. If you receive money from a friend or relative to assist with the down payment, you will need gift letters, which certify that these are not loans and have no required or obligatory repayment. These letters will often need to be notarized.
3. Employment Verification
Lenders today want to make sure they are loaning only to borrowers with a stable work history. Your lender will not only want to see your pay stubs but may also call your employer to verify that you are still employed and to check your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.
4. Other Documentation
Your lender will need to copy your driver’s license or state ID title loans in Kentucky card and will need your Social Security number and your signature, allowing the lender to pull your credit report.
Interest Rates for Conventional Mortgages
Conventional loan interest rates tend to be higher than those of government-backed mortgages, such as FHA loans (although these loans, which usually mandate that borrowers pay mortgage-insurance premiums, may work out to be just as costly in the long run).
The interest rate carried by a conventional mortgage depends on several factors, including the terms of the loan-its length, its size, and whether the interest rate is fixed interest or adjustable-as well as current economic or financial market conditions. Mortgage lenders set interest rates based on their expectations for future inflation; the supply of and demand for mortgage-backed securities also influences the rates. A mortgage calculator can show you the impact of different rates on your monthly payment.
When the Federal Reserve makes it more expensive for banks to borrow by targeting a higher federal funds rate, the banks, in turn, pass on the higher costs to their customers, and consumer loan rates, including those for mortgages, tend to go up.
Typically linked to the interest rate are points, fees paid to the lender (or broker): the more points you pay, the lower your interest rate. One point costs 1% of the loan amount and reduces your interest rate by about 0.25%.
The final factor in determining the interest rate is the individual borrower’s financial profile: personal assets, creditworthiness, and the size of the down payment they can make on the residence to be financed.
A buyer who plans on living in a home for 10 or more years should consider paying for points to keep interest rates lower for the life of the mortgage.
These types of loans are not for everyone. Here’s a look at who is likely to qualify for a conventional mortgage and who is not.
Who May Qualify
People with established credit and stellar credit reports who are on a solid financial footing usually qualify for conventional mortgages. More specifically, the ideal candidate should have:
Credit Score
A credit score is a numerical representation of a borrower’s ability to pay back a loan. Credit scores include a borrower’s credit history and the number of late payments. A credit score of at least 620 and, possibly higher can be required for approval. Also, the higher the score, the lower the interest rate on the loan, with the best terms being reserved for those with an excellent score.