When you decide to buy a home, one of the first things you need to consider is what type of loan you want to get. Many may choose a conventional loan since it is more readily available. 

Even though a conventional loan is not backed by a government agency, that doesn’t mean that they don’t follow certain government guidelines. To understand what these requirements may be, we’ve compiled a simple guide to help you.

Who Can Qualify for a Conventional Loan?

First, you have to understand if you can qualify for a conventional loan. Typically, you’d need to have at least a good credit score and a downpayment to qualify. However, it is important to note that the requirements for a conventional loan may be tougher compared to government-backed loans. 

Credit Score Requirements

A good credit score is essential to get your loan approved. But what classifies as a good credit score? Well, for conventional loans, you would need a score of at least 620. And if your credit score is at least 740, you can even get a lower down payment and good rates.

Debt-to-Income Requirements

Another factor lenders consider is your debt-to-income ratio (DTI). This ratio is achieved by dividing your total existing monthly debt with your pre-tax monthly income. If you’re unsure how to calculate this, you can find some DTI calculators online. If the ratio you’ve calculated is below 36 percent, then you have a good chance to qualify for a conventional loan.

Down Payment Requirements

When applying for any type of home loan, you will need to make a certain amount of down payment. For conventional loans, the minimum required down payment would be around three percent. However, other factors can affect the size of your down payment.

For example, if your credit score or DTI isn’t that good, you may need to put down a larger down payment. On the other hand, you could make lower down payments if you have a good credit score and low DTI. Low-down payment conventional loan programs can also help buyers with good credit scores get reasonable down payments. 

Loan Limits

The type of conventional loan you choose can affect the maximum amount of money you can borrow. If you have a conforming conventional loan, the current maximum set by the FHFA would be $548,250 for most counties. But for high-cost areas, such as Hawaii and California, it can go over $800,000.

On the other hand, if you have a nonconforming conventional loan, the limit would vary depending on the lender. To give you an idea of the maximum amount you can borrow for a jumbo loan, it is typically capped at one to two million dollars. Of course, it would still depend on the financial situation of the borrower.

Final Thoughts

While conventional loans may be more readily available from most lenders, it often has stricter requirements than government-backed loans. When applying for a conventional loan, you must factor in your credit score, debt-to-income ratio, the amount of money you’ve saved for a down payment, and the loan limits set by the type of conventional loan you want.

For conventional loans in San Diego, you can count on Cal Coast Funding to offer competitive rates and outstanding service. We pride ourselves on being one of the industry’s most reliable and proven lending groups. At Cal Coast Funding, our customers are our number one priority as we aim to provide stress-free loan processing. Apply for a loan now!