What Is a Florida Conventional Mortgage?
A Florida Conventional Loan is a mortgage option for homebuyers in Florida that is not insured by the federal government, unlike FHA, VA, or USDA loans.
Private lenders such as banks and credit unions offer these loans and are based on the borrower's financial situation and the property being purchased.
Key features of Florida Conventional Loans include:
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Down Payment Options: These loans offer down payment options as low as 3% for qualified borrowers, though a 20% down payment can eliminate the need for private mortgage insurance (PMI).
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Interest Rates: Borrowers who meet stricter eligibility criteria may benefit from lower interest rates than those available with government-backed loans.
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Property Types: Conventional loans can be used for various properties, including single-family homes, condos, and investment properties.
- Processing Time: The application process for a conventional loan can be faster than that for a government-backed loan due to the streamlined procedures of private lenders.
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What Are The Requirements for a Conventional Loan?
When evaluating a customer for a conventional mortgage, lenders are most concerned with these three factors:
Credit Score Requirements
Your credit score impacts whether or not you will be approved for a loan and what terms you will be offered. A higher credit score makes it easier to get loans with better terms.
The inverse is true. The FICO credit score ranges from 300 to 850. Your credit score must be at least 620 to qualify for a traditional loan.
Debt-to-Income Ratio Requirements
DTI is the ratio of your monthly debt payments to your total monthly income. It reflects your potential to meet your financial obligations.
If the quantity is already high, throwing a mortgage in the mix may strain your budget. That's why most lenders only give loans to individuals whose DTI is below 43%.
Down Payment Requirements
Down payments are lump-sum payments made upfront. Most homes require a 20% upfront payment. But with conventional loans, you can get a house by putting up only 3% of its price upfront.
But they may require you to purchase private mortgage insurance, which will be loaded to your regular mortgage payments until you've paid off at least 20% of the home's value.
Therefore, paying the 20% deposit is always best to avoid PMI and decrease your monthly payments while increasing your equity stake in the home from the beginning!
Pros and Cons of Florida Conventional Loans
Conventional loans and mortgages are backed by private lenders or government-sponsored entities instead of government departments. Still, according to Fannie Mae, they are the most popular types of loans and mortgages.
Why is that so?
Pros of Conventional Loans
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You don't need PMI on conventional loans if you pay 20% upfront. On the other hand, FHA loans require a mortgage insurance premium throughout the loan's life if you don't pay 10% of the price upfront.
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The PMI can be canceled once you've paid 78% of your home's appraised value.
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They have more flexible appraisal guidelines than FHA loans.
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They are available to anyone, unlike VA and USDA loans.
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They don't require a funding fee like VA loans.
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They can be used for rental properties and second homes, unlike VA and USDA loans.
- You can choose between fixed and adjustable interest rates - with a fixed rate, if interest rates are low at the time of purchase, you enjoy the same low rates throughout the life of the loan; however, adjustable rates are advantageous if you don't plan on keeping the house for long – you can sell it before rates go up.
Cons of Conventional Loans
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Require a higher credit rating than government-insured loans: Conventional loans require a credit score of at least 620. You can still qualify with a lower score, but the loan terms won't be favorable.
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Stricter DTI requirements. Most lenders won't lend to you if you have a DTI exceeding 43%.
- You will need private mortgage insurance if you cannot pay 20% of the price upfront.
Conventional Loans vs FHA, VA, and USDA Loans
When comparing Conventional Loans with FHA, VA, and USDA loans, several key differences emerge, each with distinct advantages and considerations.
This section breaks down these differences to help you make an informed decision.
Government Insurance
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Conventional Loans: Not government-insured. Private lenders back them, and the risk is usually higher for the lender.
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FHA Loans: Insured by the Federal Housing Administration, designed for lower-income borrowers.
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VA Loans: Guaranteed by the Department of Veterans Affairs, exclusively for veterans, active-duty service members, and their spouses.
- USDA Loans: Guaranteed by the United States Department of Agriculture, aimed at rural homebuyers with moderate to low income.
Down Payment
- Conventional: Varies from 3% to 20%.
- FHA: As low as 3.5%.
- VA: No down payment required.
- USDA: No down payment required.
Credit Score Requirements
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Conventional: Typically requires a higher credit score, usually around 620 or above.
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FHA: Lower minimum credit scores accepted, around 580 to qualify for the 3.5% down payment.
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VA: No minimum credit score, though lenders often require 620 or higher.
- USDA: Generally requires a credit score of 640 or higher.
Mortgage Insurance
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Conventional: Private Mortgage Insurance (PMI) is required if down payment is less than 20%.
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FHA: Mortgage Insurance Premium (MIP) is required regardless of down payment.
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VA: No mortgage insurance, but a funding fee is charged.
- USDA: Requires a guarantee fee, both upfront and annually.
Loan Limits and Property Types
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Conventional: Higher loan limits than FHA, varies by county. Flexible with property types.
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FHA: Set loan limits, lower than conventional, and primarily for primary residences.
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VA: No loan limits as of 2020, but lenders may have their own limits; only for primary residences.
- USDA: Set loan limits, typically lower than conventional and FHA, and must be in eligible rural areas.
Applying for Conventional Loans in Florida
There are things you can do to obtain a conventional loan easily. Here's a look at the preparation and application process.
Step 1: Improve your financial profile
- Fix your credit.
- Repay some or all existing debts.
- Work on boosting your monthly income.
- Save as much as you can for a down payment.
Step 2: Research lenders
There are many mortgage lenders out there; go for the consumer-friendly ones. That means lenient qualification criteria and favorable terms at lower risk.
MakeFloridaYourHome helps you find the lowest rates and best lender for your situation.
Step 3: Apply for your mortgage
The process of applying for a conventional loan can take more than a month and requires some documentation, so get ready with the following:
Proof of income
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Pay stubs for the past thirty days that show income and earnings for the year.
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Federal tax returns for the past two years.
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A quarterly or sixty-day statement of your asset accounts, such as your savings, checking, and investments.
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W-2 forms for the past two years.
- Documents proving alimony, bonuses, and any additional income.
Employment Verification
Lenders may want to lend only to individuals with a steady job history. So, in addition to pay stubs, they may need your employer's contacts to get more information.
Also, if you've just changed jobs, your old employer may be contacted by a lender. You must give detailed information about your business and earnings if you are self-employed.
Conventional Loans in Florida: The Bottom Line
The Florida Conventional Loan is a versatile and often more economically favorable option for homebuyers and investors navigating the Florida real estate market.
Distinct from government-insured loans like FHA, VA, and USDA, these conventional mortgages offer a blend of benefits, including lower down payment options, potentially lower interest rates for those with strong financial profiles, and flexibility in property types.
They are especially advantageous for those who can afford a 20% down payment, thereby avoiding the additional cost of private mortgage insurance.
Preparing your financial profile is crucial for those considering a conventional loan in Florida. This includes improving your credit score, managing debts, and saving for a down payment.
MakeFloridaYourHome offers expert guidance and support in securing a conventional loan in Florida, providing resources and advice to simplify the journey to homeownership.
