Tag Archive for: renovation

Finance a Fixer-Upper with the FHA 203(k) Home Loan

September 9, 2021
Finance a Fixer-Upper with the FHA 203(k) Loan

The FHA 203k home loan is a smart move if you’re looking to buy a fixer-upper. The housing market is still strong in many areas, bidding wars are slowing down and foreclosures are starting to pop up. Fixer-uppers offer a financial opportunity to buy a home priced below market in a great location.

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage. The 203k combines the price of the home with all renovation costs and finances everything with one mortgage. Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

What’s more, all the repairs and renovations must be approved in advance for a 203k loan so that you won’t end up in a money pit with endless repairs. There are a few restrictions along with great benefits, which we cover in this post. 

RELATED: When is it smart to use a home equity loan or home equity line of credit for home renovations?

Is the FHA 203k loan a good idea? Here’s how it works.

The FHA 203k home loan is a government-backed mortgage that’s insured by the Federal Housing Administration. It’s created to help homeowners buy and remodel a home that needs work. It has a few common names: FHA 203(k) Home Loan, Section 203(k) Home Loan, Mortgage Rehab Loan, 203k Loan Program. 

The FHA 203k loan combines the purchase price of your home with the total cost of repairs into one mortgage, including labor and materials.

That said, there are rules and regulations you have to follow to get approved for a 203k mortgage. For example:

  • The property must be your primary residence*
  • Renovation costs must be greater than $5k
  • You must work with a HUD consultant
  • All repairs must be completed by a licensed contractor
  • FHA 203k loan requires mortgage insurance
  • An FHA appraiser approves final estimates

*If your residence isn’t safe to live in during construction, the FHA 203k loan will cover your mortgage payments. Also, the 203k loan isn’t available for investment properties or homes priced above current conforming limits ($822,275 in high-cost areas, $510,400 in lower-cost areas). 

What is covered under FHA 203k?

Homebuyers can use a standard FHA 203(k) mortgage to do almost any type of renovation except for luxury amenities (e.g., a swimming pool or backyard kitchen). Also, all updates and repairs must be considered “permanent” for the home. A few popular renovations that are covered:

  • Upgrades to remove health and safety hazards
  • Improve accessibility for a disabled person
  • Update plumbing and sewer systems
  • Structural changes such as adding bedrooms
  • Remodel bathrooms and kitchens
  • Install or replace flooring, windows, roofing
  • Major landscaping projects

It’s a good idea to meet with contractors early to make sure your project can get started as soon as the loan closes. Make sure to find a contractor with experience working on projects financed with an FHA 203k loan. 

All renovations financed with a 203k loan must be finished within six months.

RELATED: The Fannie Mae Homestyle Renovation Loan for Fixer-Uppers

How much do you have to put down on a 203k loan?

The minimum down payment is 3.5% for applicants with a credit score above 580. For homebuyers with a credit score between 500-580, the typical down payment required is 10%. Gifted funds are allowed from friends and family, and there are also down payment assistant programs that might be available. Connect with a mortgage advisor to decide which mortgage program will save you the most money.

If your credit score is wavering, learn how to improve your credit score in less than 60 days which we blogged about here.

Can I use a 203k loan to flip a house?

To qualify for a 203k loan, the property must be your primary residence. So, if you’re planning to flip a house quickly while living in a different property as your primary residence, then the FHA 203k home loan won’t be a good fit.

The upside is that all repairs and renovations must be completed within 6 months for an FHA 203k loan. When all is said and done, there’s nothing keeping you from selling the house once the repairs are complete.

If you’re buying a fixer-upper as an investment property, connect with a mortgage advisor to discuss home renovation options. You could also apply for a home equity loan or a home equity line credit to finance your remodel, which we blogged about here.

How to qualify for an FHA 203k (and why you need an FHA-approved mortgage lender)

Working with the right mortgage lender is essential when it comes to the 203k loan. For one, the Federal Housing Administration (FHA) will only approve 203k home loans from an FHA-approved mortgage lender. Second, financing a fixer-upper with an FHA 203k loan is different from other types of home loans. There is a fair amount of paperwork required to meet application requirements. You’ll need to work with approved contractors and verify all estimates for repairs and materials. In addition, you will often work with a HUD consultant. 

Talk to your mortgage advisor about home renovation loans to find out which loan is the best fit. Buying a fixer-upper in 2021 can put you on the fast track to financial freedom, and getting approved for an FHA 203k loan might be the best next step.

Once your 203k loan is approved, you can rest assured you’ve got the financing you need to finish the work on your new home. It’s a helpful safety net, especially if this is your first fixer-upper.

RELATED: How to find the best mortgage lender in your area

Summary

Buying a fixer-upper can be a smart financial decision. In general, the FHA 203k loan is a good fit for a property that needs a substantial amount of work and is priced within FHA conforming limits. The property must be your primary residence and all work must be approved by the FHA. Requirements are set by the FHA, such as limits on how much you can borrow and how you can spend the money.

The main benefit is that all the construction work and repairs are estimated at the onset and rolled into one mortgage. You’ll be protected from over-extending yourself or falling into a money pit after you buy the property.

Quick reminders: Properties that need less than $5k in repairs won’t qualify for a 203k loan. Also, the FHA 203k loan has a limit on how much you can borrow, so it’s not a good fit for luxury renovations.

Take Action

There is a lot of paperwork and requirements to get approved for an FHA 203k loan, so it’s better to be prepared before you make an offer. If you’re considering buying a home that needs work, we can help you decide what type of mortgage is best for your renovation. Connect with a local mortgage advisor to get started. We’d love to help.

Apply Now–Refinance Rates Drop Below 3%

July 31, 2021
blog home exterior


In response to the FHFA’s recent announcement to eliminate the 0.5% adverse market refinance fee, mortgage lenders are driving mortgage rates lower in a race to compete for business. In the past two weeks, mortgage rates have dropped substantially, falling below 3% for qualified borrowers.  The official change takes effect on August 1, 2021. 

If you’re ready to refinance your mortgage, this is good news. Take action now to refinance your mortgage and access the lowest mortgage rates in years.

These quick steps can help you get started.

How to Fast Track Your Mortgage Application and Refinance Your Mortgage

Low interests rates are only one part of a mortgage refinance. The truth is, shopping for the lowest rate won’t always help you save money when you refinance your mortgage. Several factors directly impact your refinance rate, including your credit score, loan-to-value ratio, and the loan product. Specific lenders might advertise super-low refinance rates, but it may end up costing you more based on your approved mortgage rate and closing costs.

Step 1: Connect with a local mortgage advisor

Talk to a mortgage advisor right away if you’re considering refinancing your home mortgage. An experienced mortgage advisor can start the process quickly and help you lock in the lowest rate possible. What’s more, they’ll uncover hidden opportunities and customize a mortgage refinance to meet your long-term financial goals.

No matter your credit score or employment status, there are refinancing options available for most homeowners.

* If you’re facing foreclosure or nearing the end of forbearance, connect with a mortgage advisor today to discuss your options.

Find a qualified mortgage expert in your local area

Step 2: Estimate how much you can save

Use a free mortgage calculator to find out how much you can save when you refinance your mortgage. Decide which factors are most important to you, then connect with a mortgage advisor to discuss your mortgage goals. For example, maybe you want to refinance to a 15-year mortgage or change from an adjustable-rate mortgage to a fixed-rate mortgage.

Use this mortgage refinance calculator to see how much you can save

Step 3: Download your free credit report

You can download a free copy of your credit report once every 12 months. It’s a good idea to look for any errors in advance. Your credit score has a direct impact on the terms of your loan and your mortgage rate. By reviewing a free copy of your credit report early, you can fix errors ahead of time.

Click here to download your free credit report

Step 4: Gather required documentation for a refinance

Start gathering paperwork you’ll need to verify income and assets, employment information, bank statements, and tax returns. Ask your mortgage advisor for a quick list to help keep things on track. An experienced mortgage advisor will provide a checklist to follow and will make sure the process runs smoothly.

If you’re self-employed, your mortgage advisor can talk with you about additional information that might be required.

Questions about refinancing? We hear you.

What are my options for refinancing a mortgage?

If your current mortgage is more than 6 months old, here are the most common options worth considering:

  • Cash-out Refinance
  • Streamline Refinance
  • Rate and Term Refinance
  • Renovations & Remodels
  • Consolidate a Second Mortgage

Consider investment opportunities or other ways to extend your home equity. For example, refinance your mortgage with cash-out and invest in a second property. Or apply for a renovation loan to increase the value of your primary residence.

Can I refinance my mortgage without getting a home appraisal?

A home appraisal is necessary in many cases, but not always. Depending on your refinancing terms, the mortgage lender may require an appraisal to verify your home’s current market value.

However, you might have the option to bypass a home appraisal. Talk to a mortgage advisor to see if you qualify for a no-appraisal refinance. 

If you have an FHA loan or a VA loan, talk with a local mortgage advisor about the FHA streamline or the VA IRRRL (Interest Rate Reduction Refinance Loan). These are just a few refinance options that don’t require an appraisal.

RELATED: Talk with a local mortgage expert to find out if you qualify for a no-appraisal refinance

Are there closing costs to refinance a mortgage?

Yes. Most borrowers want to refinance a mortgage to save money and lower their monthly mortgage payments. However, if you refinance at a lower mortgage rate but face high closing costs, it might not save you money in the long run. We recently blogged about that here.

Review this sample Loan Estimate to find out which fees are negotiable. 

Closing costs typically include:

  • Origination Fee
  • Appraisal Fee
  • Credit Report Fee
  • Prepaid Homeowner’s Insurance
  • Prepaid Interest
  • Property Taxes
  • Mortgage Insurance

When you refinance a mortgage, many homeowners have the option to pay the closing costs upfront, roll them into the loan, or get a lender credit in exchange for a higher rate. Review the numbers to decide whether or not refinancing your mortgage is truly saving you money. 

RELATED: Learn the Truth About No-Closing Cost Loans

What documentation will I need to refinance my mortgage?

Refinancing a mortgage is similar to starting an application for a home loan, with a few exceptions. Mortgage lenders require varying documentation depending on the type of mortgage refinance.

Common documentation to pull together:

  • Identification such as a passport or driver’s license
  • Employment verification
  • Proof of income (e.g., pay stubs, W-2 statements, bonuses, alimony)
  • Tax returns for the past two years 
  • Recent bank statements
  • Investment account statements

If you’re self-employed, ask your mortgage advisor about additional information that might be required.

RELATED: How to refinance a mortgage when you’re self-employed

Summary

Refinance rates have dropped again and are below 3% for qualified borrowers. That said, refinancing your mortgage might not always be the best financial decision, especially if the fees and closing costs start adding up. Start your application early and review your loan estimate so you can compare potential savings. You can refinance your mortgage for a lower interest rate and a better mortgage payment by discussing your options with a qualified mortgage advisor. 

Next Steps

When you’re ready to refinance a mortgage, an experienced mortgage advisor can help you get the lowest rate and the best terms available. Connect with a mortgage advisor to discuss your options and make a plan that can help you save money on your mortgage. We’d love to help.

Build Your Dream Home with the Right Mortgage

October 26, 2022
blog backyard patio


Deciding to take the leap and build your dream home can be challenging. Especially in today’s market with higher mortgage rates, inflation, and a shifting housing market. However, as supply chains begin to open up and construction begins to grow again, it might be a good time to start dreaming again.

These past few years have given many of us the opportunity to take stock of our lives and move toward what’s important. All over the country, the housing market continues to shift as people decide to buy a first home, refinance a home, relocate to a new area, or build a dream home as their new forever home. If you’re looking to build your dream home, you’re not alone.

The truth is, financing your dream home from the ground up can feel overwhelming, but an experienced mortgage advisor can guide you through the entire process with ease.

Whether you’re buying land, planning construction, or starting to build, take the first step and connect with an advisor who can help you get the best financing and guide you through every step.

If you’re thinking about building your dream home, these considerations can help you cross the finish line.

Top Benefits of Building Your Dream Home

1. Avoid bidding wars and competition in the housing market.

Okay, let’s face it—you could end up in a bidding war for the best contractors in the area. But when you decide to build a home, you get to set the timeline and plan construction around your lifestyle. You won’t have to compete in a bidding war or make multiple offers on a home only to watch your dream home slip away. 

If housing prices in your desired location are jumping up, you can rest secure. Whether the housing market shifts or not, you won’t have to worry about the competition. Your dream home could already be in construction with financing secured.

2. Build a dream home to match your lifestyle and your values.

This is obvious but worth mentioning. When you buy a house in 2022, there might be a dozen things you want to change about the house once escrow closes. Updates and changes require more financing and more decisions.

Building your own home allows you to create every detail. Face the master bedroom toward the sunrise, set dual fireplaces in the living room, or build out a home office to include every tech tool.

You can build your dream home to fit your lifestyle, your work, your family, and your future. It’s also a smart move to get financing approved early to keep things moving forward.

Talk to a mortgage advisor today if you’re ready to build your dream home. An experienced mortgage advisor can start the process quickly and help you lock in the lowest rate possible. What’s more, they’ll uncover hidden opportunities and custom mortgage financing that will meet your immediate and long-term financial goals.

Use this mortgage calculator to see how much you can afford

3. You can build your dream home with custom financing before you start to build.

An experienced mortgage advisor can guide you through the process and help you secure financing before you start to build.

Construction costs can vary widely, but there are a number of custom loan programs that can set the stage for success. Most new construction is priced per square foot and based on the location where you want to build. . Finish work and details will vary dramatically though, so be sure to consider the following:

  • General Construction (avg. price per square foot)
  • Plot / Land – market rate for the area
  • Level / Clear the land
  • Foundation
  • Framing
  • Plumbing, HVAC, electrical
  • Exterior – windows, roofing, driveway
  • Interior – bath/kitchen, flooring, cabinetry, appliances
  • Landscaping – soft scape, plants, patio, pool, kitchen
  • Blueprints – design and architectural
  • Building permits

Costs will vary widely depending on your style, quality of materials and preferences. Labor costs can also vary greatly based on who you hire.

Connect with a local mortgage advisor who can recommend custom financing so you can build your dream home with a steady plan that meets your financial goals.

A few considerations before you build your dream home.

1. Buying a home instead of building a home can be a simpler process.

Buying a home can be much easier than building a home. The costs and fees will vary based on the area, but getting a fast pre-approval for a mortgage can help you stay competitive. High-cost areas are still very competitive, so be patient in your search and talk with your realtor about the best strategies.

The upfront costs are fairly standard. And getting a mortgage pre-approved can relieve stress, so you don’t have to worry about financing falling through. In general, the upfront costs to buy a house are predictable:

  • Earnest money down
  • Down payment
  • Mortgage points (if applicable)
  • Property taxes
  • Private mortgage insurance (if down payment is < 20%)
  • Homeowners insurance
  • Closing costs (loan fees, mortgage points, appraisal, title insurance)

RELATED: Talk with a local mortgage expert to get preapproved for your best mortgage

2. Move-in schedule is predictable when you buy a home.

Typically, escrow closes on a new home within 30-45 days. Often this means new homeowners can move into a new home in less than 60 days from the day an offer is accepted.

Scheduling the move to a new place can be a lot of work, but it’s a sprint to the finish line.

RELATED: Learn the Truth About No-Closing Cost Loans

Next Steps

If you’re ready to take action and build your dream home, we can help you get the right financing to help you reach your homeownership goals. There are dozens of options and custom loans available to meet your dreams. Whether you’re ready to buy land, secure an architect, or start construction, we can help you get the best financing. Connect with a local mortgage advisor to discuss your goals. The right home loan can help you build financial security and save money on your mortgage. We’d love to help.

Decision Time: Should I Build or Buy a House in 2022

February 22, 2022
mortgage blog, build or buy a house, preferred rate


We all envision our dream home. Three stories high with a clear view of the mountains. A sprawling flat in the middle of a vibrant city. Wrap-around porches with a neighborhood vibe.

When it’s time to invest in our dream home, many homebuyers ask the same question: should I build or buy a house?

Deciding whether to build or buy a house in 2022 comes with challenges, for sure. Rising mortgage rates and inflation make it difficult to predict the housing market. What’s more, the pandemic has caused a bottleneck on supplies, materials, delivery, and even labor.

What about financing? Getting pre-approved for a mortgage is the best first step, whether you’re buying a house, buying land, or starting to build.

Financing a mortgage to build your dream home in 2022 could feel complicated compared to buying a house that’s for sale. But building a home has advantages that might make the payoff worth the extra effort.

If you’re deciding whether to build or buy a house in 2022, these considerations can help you cross the finish line.

Benefits to Building a Home in 2022

1. Avoid the bidding wars and housing market competition.

Okay, let’s face it—you could end up in a bidding war for the best contractors in the area. But when you decide to build a home, you get to set the timeline and plan construction around your lifestyle. You won’t have to worry about losing out on a bid or making an offer on the perfect home only to watch it slip away. 

If housing prices in your desired location are jumping up, you can rest secure. Whether the housing market shifts or not, you won’t have to worry about the competition. Your dream home could already be in construction with financing secured.

2. Build a custom home to fit your lifestyle.

This is obvious but worth mentioning. When you buy a house in 2022, there might be fifty things you want to change about the house the minute escrow closes. Updates and changes require more financing and more decisions.

Building your own home allows you to create every detail. Face the master bedroom toward the night sky, dual fireplaces in the living room, or build out a home office to include every tech tool.

You can build a home in 2022 to fit your lifestyle, your work, your family, and your future. It’s also a smart move to get financing approved early to keep things moving forward.

Talk to a mortgage advisor right away if you plan to build a custom home. An experienced mortgage advisor can start the process quickly and help you lock in the lowest rate possible. What’s more, they’ll uncover hidden opportunities and customize mortgage financing to meet your immediate and long-term financial goals.

Use this mortgage calculator to see how much you can afford

Drawbacks to Building a Home in 2022

1. Be prepared for delays and extra costs, especially in 2022.

Deciding to build a home can be unpredictable along the way. It’s normal to expect delays in construction or supplies. The downside is that you may need to rent longer than expected or live somewhere temporarily that isn’t convenient.

Along the same lines, you may face challenges with contractors or suppliers. Again, be prepared to address delays and be flexible. There will be times you’ll need to operate as a project manager, and other times it will help to stay adaptable. 

Be prepared to face shortages and change orders as a result of the current supply change shortages across industries.

In 2022, there are still a lot of logistics out of everyone’s control—delays in shipments, distribution and deliveries, manufacturing, and production. There is almost no industry that remains untouched by the pandemic. 

Find a qualified local mortgage advisor

2. It can be difficult to estimate the cost to build your dream home.

You can search average construction costs via zip code across the country, as most new construction is priced per square foot. The finish work and details will vary dramatically though, so be sure to consider the following:

  • General Construction (avg. price per square foot)
  • Plot / Land – market rate for the area
  • Level / Clear the land
  • Foundation
  • Framing
  • Plumbing, HVAC, electrical
  • Exterior – windows, roofing, driveway
  • Interior – bath/kitchen, flooring, cabinetry, appliances
  • Landscaping – soft scape, plants, patio, pool, kitchen
  • Blueprints – design and architectural
  • Building permits

Costs will vary widely depending on your style, quality of materials and preferences. Labor costs can also vary greatly based on who you hire.

3. Change orders can cause costs to escalate.

Even with contracts in place, costs can grow out of control if you’re not careful. New materials, change orders, and requesting updates along the way can run up the costs quickly. You’ll have hundreds of decisions to make along the way, from architecture to design elements to textiles and finish work. 

Try to work through the entire project ahead of time and be as detailed as possible.

For example, changing out kitchen cabinets or flooring midway can cause costs to increase dramatically. 

Be careful not to over-extend beyond approved financing or get too far into a project that’s beyond your budget and timeline.

Pros and Cons: Buying a Home in 2022

PRO: Buying a home is a straightforward process.

Buying a home in 2022 is much easier than building a home. The costs and fees will vary based on the area, but getting a fast pre-approval for a mortgage can help you stay competitive. High-cost areas are still very competitive, so be patient in your search and talk with your realtor about the best strategies.

The upfront costs are fairly standard. And getting a mortgage pre-approved can relieve stress, so you don’t have to worry about financing falling through. In general, the upfront costs to buy a house are predictable:

  • Earnest money down
  • Down payment
  • Mortgage points (if applicable)
  • Property taxes
  • Private mortgage insurance (if down payment is < 20%)
  • Homeowners insurance
  • Closing costs (loan fees, mortgage points, appraisal, title insurance)

RELATED: Talk with a local mortgage expert to get preapproved for your best mortgage

PRO: Move-in schedule is predictable when you buy a home.

Typically, escrow closes on a new home within 30-45 days. Often this means new homeowners can move into a new home in less than 60 days from the day an offer is accepted.

Scheduling the move to a new place can be a lot of work, but it’s a sprint to the finish line.

RELATED: Learn the Truth About No-Closing Cost Loans

CON: Immediate repairs or maintenance may be required.

The professional home inspection may have alerted a number of projects that will need to be taken care of once you’re the new owner. You may need to consider costs for repairs, maintenance, or upgrades that are needed right away. The home may have structural damage or simply design elements that you don’t like.

CON: Outdated electrical, plumbing, or HVAC may need updating.

When you buy a house, it may have outdated electrical or plumbing. Insurance rates will most likely be higher for an older home, especially if it’s not energy efficient.

Once you start making updates, contractors may uncover older details that need to be brought up to code. This could result in additional costs and work that you didn’t expect to take on.

RELATED: Top 7 ways to increase the value of your home in 2022

Next Steps

If you’re deciding whether to build or buy a home in 2022, take time to consider the pros and cons in the face of today’s economy. Think about your lifestyle, how you’ll prepare for the unexpected, and what type of mortgage you want. Connect with a local mortgage advisor to discuss your goals. The right home loan can help you build financial security and save money on your mortgage. We’d love to help.

Pros and Cons of a Conventional Mortgage

August 3, 2022
mortgage blog, conventional mortgage, home loan

A conventional mortgage is one of the most popular mortgages among homeowners, offering lower costs and better mortgage rates than most other loan products. In short, conventional mortgages are backed by lenders such as banks, credit unions, and mortgage companies instead of backed by the government.

Since conventional mortgages aren’t government-backed, lenders have more freedom to meet the custom needs of individual homebuyers. Conventional mortgages offer lower rates, greater flexibility, and better loan terms for qualified borrowers buying a home or refinancing a mortgage.

We’ve been hearing some common questions lately:  Is it hard to get approved for a conventional loan? What are the pros and cons of a conventional loan? What are the requirements and how do I apply for a conventional loan?

This article can help. 

RELATED: Are you a first-time homebuyer? Check out these special advantages for first-time homebuyers

How does a conventional mortgage work?


On the surface, conventional mortgages work like most home loans. They offer popular terms (fixed-rate, adjustable-rate, 30-year, etc.) and competitive mortgage rates. Your property is collateral for your mortgage, and there is a payment schedule for the life of your loan.

Conventional mortgages are available through private lenders such as banks, credit unions, and mortgage companies. However, conventional loans are not government-backed mortgages, and there are different requirements to get approved depending on the lender.

Government-backed mortgages, such as FHA loans, VA loans and USDA loans, typically offer less strict criteria to qualify and require smaller down payments. These mortgages are typically easier for homebuyers to get approved, but the costs and fees to service the mortgage may be higher than a conventional loan.

Conventional mortgages, on the other hand, often have stricter requirements to qualify but lower costs overall. Conventional mortgages are ideal for primary residences, jumbo loans, second properties, vacation homes, and investment properties.

If you have verifiable income, a high credit score, and cash reserves, then a conventional mortgage might be your best choice.

Conventional loans fall into two categories: conforming and non-conforming.

Conforming loans in 2022 require a mortgage at or below $647,200 in most of the U.S. for a single-family property. In areas where the cost of living is higher, the conforming limit is $970,800. The FHFA sets the loan limits, which meet the requirements for Fannie Mae and Freddie Mac in 2022.

Fannie Mae and Freddie Mac then purchase and guarantee the loans, then sell them on the secondary market. This process frees up mortgage lenders so they can recover capital quickly and continue to originate, underwrite and fund home loans for homebuyers. 

A non-conforming loan is any mortgage that surpasses the mortgage limit set by Fannie Mae and Freddie Mac ($647,200 – $970,800 depending on the area). A jumbo loan is a common example of a non-conforming conventional loan. 

To find out the limits in your area, connect with a local mortgage advisor. An experienced mortgage advisor can discuss your home loan options and recommend a customized home loan. Together, you can meet your financial goals and save money on your mortgage.

What are the pros and cons of a conventional loan?

Depending on your situation, a conventional mortgage could save you money on your mortgage. These pros and cons can help you make an informed decision.

Benefits of a Conventional Mortgage

Available for all types of properties

Conventional mortgages can be used for a vacation home, a rental property, investment property, or your primary residence. By contrast, most government-backed loans are only available for your primary residence.

Competitive interest rates

Conventional mortgage rates are very competitive and typically lower than FHA loans. Qualified borrowers typically have verifiable income, cash reserves, and good credit history.

Low down payment requirements

Many conventional loans offer the best terms with a 20% down payment, but you can also apply for the Conventional 97 which only requires 3% down. This is a great option if you have high cash reserves but want to invest your money elsewhere.

Flexible loan terms

A conventional mortgage is available for purchase mortgages, refinancing, renovations and investment properties. Mortgage options include fixed-rate loans, adjustable-rate loans, 15-year and 30-year terms, as well as specialty loan products.

Higher purchase limits

Conventional loans are ideal for jumbo loans and unique properties that exceed limitations set by other loan products.

Financial freedom

Conventional loans can be customized alongside specialty loan programs to help you reach financial freedom.

*If you’re looking to save money on closing costs, check out our recent article on a no-closing-cost loan, which we blogged about here.

Drawbacks of a Conventional Mortgage

PMI might be required

Private mortgage insurance (PMI) will be required until you hold at least 78% equity in your home. You can bypass this requirement by providing a 20% down payment.

Strict DTI criteria

Mortgage lenders typically require borrowers to have a maximum debt-to-income ratio between 36%-43% to get approved for a conventional loan. Some lenders will go as high as 50% DTI, though this is less common.

Higher credit score requirements

A credit score of at least 620 is typically required for a conventional loan. However, aim for a 700+ credit score to get a conventional mortgage with the lowest mortgage rate and the best loan terms.

Zero-Down Payment options are not available

If you’re looking for a no-money-down mortgage, check out government-backed mortgages like the VA loan or a USDA loan.

* Conventional mortgages are often a top choice for homebuyers who are buying a home as an investment property, a second home, or want to buy a home with a purchase price above conforming limits.

RELATED: How to get qualified for a mortgage with a friend or family member

How to Apply for a Conventional Mortgage

Step 1. Estimate how much you can afford [click here]

Step 2. Start your free custom mortgage application [click here]

Step 3. Gather your documentation (e.g., identification, income, assets, employment)

Step 4. Connect with a mortgage advisor to discuss your options [click here]

Step 5. Close on on your new mortgage and start saving money!

If you’re self-employed or plan to qualify using non-standard income, read this recent article we blogged about here…

Is it difficult to get approved for a conventional loan?

Homebuyers with established credit and solid financial positioning will typically qualify for a conventional mortgage with the best terms: the higher your credit score, the better your interest rate.

Mortgage lenders will compete for your business if you have a high credit rating, a low debt-to-income ratio, consistent income, and high cash reserves.

On the other hand, homebuyers with a short credit history or more debt than usual, might not get approved for a conventional loan. Side note, if you’ve got student loan debt and want to get approved for a mortgage, we blogged about that here.

A few criteria that might keep you from getting approved for a conventional loan:

  • bankruptcy or foreclosure in the past 7 years
  • credit score below 650
  • debt-to-income ratio above 45%
  • down payment less than 10%

What are the minimum requirements to qualify for a conventional mortgage?

  • credit score 620+
  • debt-to-income ratio less than 43%
  • proof of employment
  • verification of income
  • down payment of at least 3%


Worth noting, borrowers who have a DTI of 36% or less, a 700+ credit score, and high cash reserves will be able to get the most competitive loans.

RELATED: HOW TO BOOST YOUR CREDIT SCORE IN LESS THAN 60 DAYS

Best Alternatives for First-time Homebuyers

If you’re a first-time homebuyer, check out the top five mortgages for first-time homebuyers, which we blogged about here. Even if you don’t fit the profile for a conventional loan, there are several advantages available to first-time homebuyers.

The FHA loan is another great option for homebuyers. The FHA loan has flexible approval requirements and offers low rates and a low down payment.

If you’re an active member of the military, the VA loan is a great option with several benefits, including low rates and a 0% down payment requirement. Find out more on our recent article posted here.

Working with a qualified mortgage advisor who understands your situation is the best decision you can make. An experienced mortgage advisor can recommend custom loan options and help you get approved for a preferred mortgage.

Next Steps

When you’re ready to apply for a mortgage or refinance, an experienced mortgage advisor can help you decide whether or not a conventional mortgage is the best loan for you. We offer homebuyers specialty loan products, conventional loans, government-backed mortgages and more. Connect with a mortgage advisor to discuss your options and make a plan that can help you save money on your mortgage. We’d love to help.

Conventional Mortgages: Pros and Cons and Getting Approved

July 24, 2021
blog mom and baby at home

A conventional mortgage is one of the most popular mortgage products in the U.S. today, offering lower costs and better mortgage rates than most other loan products. In short, conventional mortgages are backed by private lenders such as banks, credit unions, and mortgage companies instead of backed by the government.

Since conventional mortgages aren’t government-backed, lenders have more freedom to meet the custom needs of individual homebuyers. Conventional mortgages offer lower rates, greater flexibility, and better loan terms for qualified borrowers buying a home or refinancing a mortgage.

We’ve been hearing some common questions lately:  Is it hard to get approved for a conventional loan? What are the pros and cons of a conventional loan? What are the requirements and how do I apply for a conventional loan?

This article can help. 

RELATED: Are you a first-time homebuyer? Check out these special advantages for first-time homebuyers in 2021

How does a conventional mortgage work?


On the surface, conventional mortgages work like most home loans. They offer popular terms (fixed-rate, adjustable-rate, 30-year, etc.) and competitive mortgage rates. Your property is collateral for your mortgage, and there is a payment schedule for the life of your loan.

Conventional mortgages are available through private lenders such as banks, credit unions, and mortgage companies. However, conventional loans are not government-backed mortgages, and there are different requirements to get approved depending on the lender.

Government-backed mortgages, such as FHA loans, VA loans and USDA loans, typically offer less strict criteria to qualify and require smaller down payments. These mortgages are typically easier for homebuyers to get approved, but the costs and fees to service the mortgage may be higher than a conventional loan.

Conventional mortgages, on the other hand, often have stricter requirements to qualify but lower costs overall. Conventional mortgages are ideal for primary residences, jumbo loans, second properties, vacation homes, and investment properties.

If you have verifiable income, a high credit score, and cash reserves, then a conventional mortgage might be your best choice.

Conventional loans fall into two categories: conforming and non-conforming.

Conforming loans require a mortgage at or below $548,250 in most of the U.S. for a single-family property. In areas where the cost of living is higher, the conforming limit is $822,275. The FHFA sets the loan limits, which meet the requirements for Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac then purchase and guarantee the loans, then sell them on the secondary market. This process frees up mortgage lenders so they can recover capital quickly and continue to originate, underwrite and fund home loans for homebuyers. 

A non-conforming loan is any mortgage that surpasses the mortgage limit set by Fannie Mae and Freddie Mac ($548,250 – $822,275 depending on the area). A jumbo loan is a common example of a non-conforming conventional loan. 

To find out the limits in your area, connect with a local mortgage advisor. An experienced mortgage advisor can discuss your home loan options and recommend a customized home loan. Together, you can meet your financial goals and save money on your mortgage.

What are the pros and cons of a conventional loan?

Depending on your situation, a conventional mortgage could save you money on your mortgage. These pros and cons can help you make an informed decision.

Benefits of a Conventional Mortgage

Available for all types of properties

Conventional mortgages can be used for a vacation home, a rental property, investment property, or your primary residence. By contrast, most government-backed loans are only available for your primary residence.

Competitive interest rates

Conventional mortgage rates are very competitive and typically lower than FHA loans. Qualified borrowers typically have verifiable income, cash reserves, and good credit history.

Low down payment requirements

Many conventional loans offer the best terms with a 20% down payment, but you can also apply for the Conventional 97 which only requires 3% down. This is a great option if you have high cash reserves but want to invest your money elsewhere.

Flexible loan terms

A conventional mortgage is available for purchase mortgages, refinancing, renovations and investment properties. Mortgage options include fixed-rate loans, adjustable-rate loans, 15-year and 30-year terms, as well as specialty loan products.

Higher purchase limits

Conventional loans are ideal for jumbo loans and unique properties that exceed limitations set by other loan products.

Financial freedom

Conventional loans can be customized alongside specialty loan programs to help you reach financial freedom.

*If you’re looking to save money on closing costs, check out our recent article on a no-closing-cost loan, which we blogged about here.

Drawbacks of a Conventional Mortgage

PMI might be required

Private mortgage insurance (PMI) will be required until you hold at least 78% equity in your home. You can bypass this requirement by providing a 20% down payment.

Strict DTI criteria

Mortgage lenders typically require borrowers to have a maximum debt-to-income ratio between 36%-43% to get approved for a conventional loan. Some lenders will go as high as 50% DTI, though this is less common.

Higher credit score requirements

A credit score of at least 620 is typically required for a conventional loan. However, aim for a 700+ credit score to get a conventional mortgage with the lowest mortgage rate and the best loan terms.

Zero-Down Payment options are not available

If you’re looking for a no-money-down mortgage, check out government-backed mortgages like the VA loan or a USDA loan.

* Conventional mortgages are often a top choice for homebuyers who are buying a home as an investment property, a second home, or want to buy a home with a purchase price above conforming limits.

RELATED: How to get qualified for a mortgage with a friend or family member

How to Apply for a Conventional Mortgage

Step 1. Estimate how much you can afford [click here]

Step 2. Start your free custom mortgage application [click here]

Step 3. Gather your documentation (e.g., identification, income, assets, employment)

Step 4. Connect with a mortgage advisor to discuss your options [click here]

Step 5. Close on on your new mortgage and start saving money!

If you’re self-employed or plan to qualify using non-standard income, read this recent article we blogged about here…

Is it hard to get approved for a conventional loan?

Homebuyers with established credit and solid financial positioning will typically qualify for a conventional mortgage with the best terms: the higher your credit score, the better your interest rate.

Mortgage lenders will compete for your business if you have a high credit rating, a low debt-to-income ratio, consistent income, and high cash reserves.

On the other hand, homebuyers with a short credit history or more debt than usual, might not get approved for a conventional loan. Side note, if you’ve got student loan debt and want to get approved for a mortgage, we blogged about that here.

A few criteria that might keep you from getting approved for a conventional loan:

  • bankruptcy or foreclosure in the past 7 years
  • credit score below 650
  • debt-to-income ratio above 45%
  • down payment less than 10%

What are the minimum requirements to qualify for a conventional mortgage?

  • credit score 620+
  • debt-to-income ratio less than 43%
  • proof of employment
  • verification of income
  • down payment of at least 3%


Worth noting, borrowers who have a DTI of 36% or less, a 700+ credit score, and high cash reserves will be able to get the most competitive loans.

RELATED: HOW TO BOOST YOUR CREDIT SCORE IN LESS THAN 60 DAYS

Best Alternatives for First-time Homebuyers

If you’re a first-time homebuyer, check out the top five mortgages for first-time homebuyers, which we blogged about here. Even if you don’t fit the profile for a conventional loan, there are several advantages available to first-time homebuyers.

The FHA loan is another great option for homebuyers. The FHA loan has flexible approval requirements and offers low rates and a low down payment.

If you’re an active member of the military, the VA loan is a great option with several benefits, including low rates and a 0% down payment requirement. Find out more on our recent article posted here.

Working with a qualified mortgage advisor who understands your situation is the best decision you can make. An experienced mortgage advisor can recommend custom loan options and help you get approved for a preferred mortgage.

Next Steps

When you’re ready to apply for a mortgage or refinance, an experienced mortgage advisor can help you decide whether or not a conventional mortgage is the best loan for you. We offer homebuyers specialty loan products, conventional loans, government-backed mortgages and more. Connect with a mortgage advisor to discuss your options and make a plan that can help you save money on your mortgage. We’d love to help.

The Fannie Mae HomeStyle Renovation Loan: Worth It?

April 26, 2021
blog open living room

The Fannie Mae HomeStyle Renovation Home Loan is a solid opportunity for homeowners excited about buying a fixer-upper. Even if you haven’t thought about buying a home in need of repairs, the HomeStyle loan has a full suite of advantages worth considering.

Why? Housing inventory remains low, rates dropped again this week, and the Fannie Mae HomeStyle renovation loan folds the cost of renovation and repairs into one mortgage. You won’t fall into a money pit with unlimited surprises, since the entire renovation is planned and approved before the loan closes.

The HomeStyle renovation loan reduces risk (for you and your lender) by approving a final loan amount covering all updates and repairs before the loan closes. Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the peace of mind that comes with one mortgage payment.

Fixer-Uppers are a Smart Move in Today’s Housing Market

Buying a fixer-upper isn’t always a popular decision. New homeowners often want a property with great curb appeal and everything ready to roll. Some think that fix-and-flip buyers are the only ones purchasing homes that need a lot of repairs. But in reality, this isn’t the case.

Mortgage interest rates dropped again this week despite signs of inflation, and the majority of homeowners are refinancing instead of moving which means housing inventory is still low.

A decade ago, homeowners might have traded up, moved to a bigger house, or even a better location. But with so much uncertainty in the economy, more people are staying put, which means housing inventory might remain low for a while. 

The HomeStyle loan requires a bit of work upfront to estimate the cost of repairs and get approved. Keep reading to see the benefits.

Fannie Mae Homestyle Renovation Loan: How it Works

Fannie Mae HomeStyle Loan is a government-backed loan designed to help homeowners purchase a home in need of repair. The cost of repairs and renovation is estimated ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price) in one monthly payment.

A designated custodial account holds the funds for renovation and repairs. As soon as the loan closes, you’ll begin paying your monthly mortgage. The contractor can start work immediately and submit requests for funds at each milestone. Inspection will take place each time there is a “draw” on the account.

When the work is complete, there is a final inspection and appraisal. A bit of business to change to the title, and you’re ready to enjoy your new home!

The HomeStyle Loan is Incredibly Flexible

You could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), upgrade the interior with brand new bathrooms, or build an extensive remodel.

One caveat: The HomeStyle home loan does not allow homeowners to tear down the existing structure to build a new one. Also, all renovations must be affixed to the property (permanent).

How to Apply for the HomeStyle Loan

Step 1: Find an approved lender and start the process to get pre-approved.

Step 2: Select a licensed contractor and work together to create detailed plans and a clear schedule. Create a timeline with milestones to show how long it will take.

Step 3: Share the final plans with your lender.

Step 4: Schedule an appraiser to inspect the home and review the plans. The appraiser will provide a valuation based on the “finished property.”

Step 5: Discuss the results with your lender to confirm how much you’re approved to borrow.

Once the final amount for the HomeStyle renovation loan is approved, you’re on your way to one simplified mortgage & a renovated home!

Eligibility Requirements

If you’re wondering who is eligible for the Fannie Mae HomeStyle Renovation Loan, it’s similar to conforming loan standards. While there is a fair amount of work upfront to apply, the eligibility requirements are fairly standard:

Homeowner Requirements:

  • Evidence of reliable income via tax returns
  • Verifiable employment & regular income
  • Loan-to-value (LTV) < 97%
  • Debt-to-income ratio (DTI) < 45%
  • Credit score 620+

Property Requirements:

  • Detached single-family home
  • Townhome, condo, manufactured home
  • Readily accessible roads that meet local standards
  • Served by utilities that meet community standards
  • Construction costs up to 75% of the home’s value

Second homes, investment properties, and 1-4 unit properties are possible, but the requirements for the borrower might be more strict. You can also use the additional funds to help bring your property up to standard, but the scope of work will need to be in the plans.

Additional Resources

The Fannie Mae HomeStyle Renovation Loan isn’t the only home renovation loan available right now. Another option is the FHA 203(k), and the VA Renovation Loan has exclusive benefits for members of the military. All of these options keep things manageable with one monthly mortgage payment that includes renovation costs.

Final Takeaway

If you’re ready to meet the challenge, the HomeStyle renovation loan will give you everything you need to build the house of your dreams AND take advantage of low rates. Properties that might be less desirable to some could be a great opportunity with the HomeStyle renovation loan.

Next Steps

Working with an experienced mortgage advisor can help you reach your financial goals. If you’d like to understand more about the Fannie Mae HomeStyle Renovation Loan, give us a call to discover what’s possible. We’d love to help. 

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Home Equity Loan vs. HELOC for Home Renovation

April 17, 2021
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Building equity in your home is one of the great advantages of being a homeowner. Accessing your home equity when you need it is even better. So when it comes to home improvement and house repairs, what’s the best way to tap into your home equity? For homeowners who have seen a big jump in the value of their home in 2020, you have a lot of options. This short article breaks down the benefits and drawbacks of using a Home Equity Loan vs. HELOC (Home Equity Line of Credit) for home repairs and renovations.

Home Equity Basics

Home equity is the financial difference between what you owe on your home (your mortgage balance) and the value of your home (based on a formal appraisal). For example, if your current mortgage balance is $478k and the current market value of your home is $680k, then you’ve got a little over $200,000 in home equity.

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers the risk of foreclosure in the eyes of the lender. In the example above, the 80% Loan-to-Value maximum would be $544k, giving you potential access to $65k.

How to Use Home Equity Funds: Home Renovations, Repairs, and Remodels

To decide if a home equity loan or home equity line of credit might be a good fit, it’s a good idea to figure out how you want to use the funds. A few popular updates are:

  • kitchen remodels
  • bathroom remodels
  • new roofing, siding, windows
  • major landscaping & backyard improvements
  • home office additions

Since both a home equity loan and a home equity line of credit are big financial commitments, take time to consider the value of the improvements you want to make. Renovations don’t necessarily have to improve the value of your home but they will work to your benefit if they do. Both loans are designed to help maintain and improve the value of your home. Ideally, you want to increase your property value in the process. If you need to sell your house for an unexpected reason, you won’t be upside down when it comes to your mortgage.

Home Equity Loan Advantages

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. When you’re approved for a home equity loan, you get the full amount in one lump sum. Then you pay off the loan in fixed payments over the life of the loan.

Highlights and Advantages:
  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled, or if you might want to refinance later.

Home Equity Line of Credit (HELOC) Advantages

Home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit. You can use the funds at any time and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR which is based on the prime rate and market trends.

Main Benefits:
  • Access as much or as little money as you want to meet the needs of your projects
  • Interest accrues only when you access the funds
  • Repayment terms are flexible, pay it off or make minimum monthly payments
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

Additional Resources for Home Renovations

Home equity loans and HELOC’s are both set up as a second loan using your home as collateral. If you don’t want a second loan, or you want to refinance your mortgage and take advantage of other financing options, you’re not alone. A few other options to consider:

  1. Fannie Mae HomeStyle Renovation Loan
    A conventional home loan that wraps everything into one mortgage: purchase price (or mortgage balance), repairs, updates, labor, and materials.
  2. FHA 203(k) Home Loan
    A government-backed home loan to purchase a fixer-upper or refinance a home loan to cover major repairs or renovations. One mortgage will cover the purchase price (or refinance) plus the costs of all upgrades and repairs.
  3. VA Renovation Home Loan
    The VA renovation home loan is a government-backed mortgage with exclusive benefits for active-duty service members, veterans, and eligible spouses. It rolls the cost of the mortgage plus the cost of repairs and upgrades all into one home loan

Each of these renovation home loans has various requirements and limitations for loan approval. Talking with a mortgage expert can help decide which options will save you the most money and help you reach your financial goals.

TAKING ACTION

If you’re thinking about tapping into the equity in your home, talk with an experienced mortgage advisor. A great loan advisor can save you money and keep the process moving easy and stress-free. Just knowing what to expect can help you decide the best action to reach your goals. When it comes to saving money on your mortgage, we can help.