Obtaining a conventional mortgage can be an excellent financing option if you are interested in purchasing a home because of their variety of loan options and lower costs. Many people are under the impression that a 20% down payment is required when applying for a conventional loan, however, you can qualify for a loan with a much lower amount; It is even possible to get a conventional loan with a 5% down payment. If you are searching for a home in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and are interested in learning more about buying a home with a 5% down payment, contact Foundation Mortgage. We can work closely with you to help you select the best mortgage and down payment options for your situation.
The Ins and Outs of a 5% Down Conventional Loan
If you plan to purchase a home with a 5% down payment, that means that you will need to finance 95% of the home’s value with a conventional loan. Conventional loans are insured by either private lenders or government-sponsored enterprises, and are not backed by a government agency like FHA or VA loans, which are considered non-conventional loans. Due to the fact that they are not insured by the government, conventional loans are riskier for lenders because in the event that a borrower cannot make payments on the loan, lenders are not guaranteed those funds. That is why qualifying for a conventional loan comes with stricter requirements. Even if a borrower has a lower credit score, however, they can still qualify for 5% down conventional loan.
The Benefits of a 5% Down Conventional Loan
There are many benefits to getting a 5% down conventional loan, including: the down payment itself can be a gift, you have the option of either a fixed rate or adjustable mortgage, and appraisal requirements for conventional loans are typically less restricting than non-conventional loans. It is important to note that if you make a down payment of less than 20%, private mortgage insurance, (PMI), will be required, however, you will no longer be required to pay for private mortgage insurance once 78% of the loan amount has been paid.
Qualifying for a 5% Down Conventional Loan
Typical requirements for a 5% down conventional loan include:
- Private mortgage insurance
- A credit score of 620 or higher
- A debt-to-income ratio, (DTI), of 50% or lower
- Conventional loans must be within the Freddie Mac and Fannie Mae limits, which is currently $548,250
Buy Your Dream Home With a 5% Down Conventional Loan
Choosing a suitable loan and trying to determine the amount you need to pay for a down payment can be a challenging undertaking. Fortunately, the loan specialists at Foundation Mortgage can help. If you are interested in purchasing a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee with a 5% down conventional loan, contact our office today.