Conventional Mortgage in Alpharetta, GA

What Is a Conventional Mortgage?

A conventional mortgage or conventional loan is any type of home loan that is not offered or secured by a government entity, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) or the USDA Rural Housing Service, but instead is available through or guaranteed by a private lender (banks, credit unions, mortgage companies) or the two government-sponsored enterprises, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Conventional loans offer excellent interest rates and do not require mortgage insurance when a 20% down payment is made. Conventional loans can be used to purchase a home with as little as 3% down and are the most common loans for borrowers with excellent credit.

Conventional loans are often erroneously referred to as conforming mortgages or loans. While there is overlap, the two are distinct categories. A conforming mortgage is one whose underlying terms and conditions meet the funding criteria of Fannie Mae and Freddie Mac. Chief among those is a dollar limit, set annually by the Federal Housing Finance Agency (FHFA): In 2019, in most of the continental U.S., a loan must not exceed $484,350. So while all conforming loans are conventional, not all conventional loans qualify as conforming. A jumbo mortgage of $800,000, for example, is a conventional mortgage but not a conforming mortgage – because it surpasses the amount that would allow it to be backed by Fannie Mae or Freddie Mac.

Currently, conventional mortgages represent around two-thirds of the homeowners’ loans issued in the U.S. The secondary market for conventional mortgages is extremely large and liquid. Most conventional mortgages are packaged into pass-through mortgage-backed securities, which trade in a well-established forward market known as the mortgage TBA (to be announced) market. Many of these conventional pass-through securities are further securitized into collateralized mortgage obligations (CMOs).

How a Conventional Mortgage Works

In the years since the subprime mortgage meltdown in 2007, lenders have tightened the qualifications for loans – “no verification” and “no down payment” mortgages have gone away, for example – but most of the basic requirements haven’t changed. Potential borrowers will need to complete a mortgage application then supply the lender with the necessary documents to perform a check on their credit history and current credit score.

Required Documentation

No property is ever 100% financed. In checking your assets and liabilities, we will look to see not only if you can afford your monthly mortgage payments (which usually shouldn’t exceed 28% your gross income), but also if you can handle a down payment on the property.  Among the items required are:

1. Proof of income.

These documents will include but may not be limited to:

  • 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
  • Borrowers also need to be prepared with proof of any additional income, such as alimony or bonuses.

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.

We’ll need to make sure we are loaning only to borrowers with a stable work history. We 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, we may want to contact your previous employer. Self-employed borrowers will need to provide paperwork concerning their business and income.

4. Other documentation.

Mortgage Brothers will need to copy your driver’s license or state ID card and will need your Social Security number and your signature, allowing the lender to pull your credit report.

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