In the Market for a Home? Why a Conventional Loan Could Be Right for You

Conventional sounds so… conventional.

But the traditional path to home ownership doesn’t have to be boring — especially if it could save you thousands of dollars over the life of your home loan.

Government-backed loans — like the Federal Housing Administration (FHA) or Veteran’s Administration (VA) — might get more attention for the low (or no) down payments, but the reality is that the more people get conventional loans when buying a home. 

Of the $1.63 trillion in first mortgages taken out in 2018, conventional loans claimed 45% of the market while FHA’s and VA’s combined share was 22.6%.

And although a government assistance program may seem like an easy way to home ownership, there’s a good chance that may not even be an option.

“At least a third of the people I work with are not eligible for assistance programs,” said Lisa Hamilton, an Accredited Financial Counselor and a counselor at the U.S. Department of Housing and Urban Development (HUD).

Since a home will probably be your biggest purchase, it’s in your best interest to understand how the loan works. Here’s what you need to know about a conventional home loan.

What Is a Conventional Loan?

At its most basic, a conventional loan is a mortgage that is not guaranteed or insured by any government agency.

The loans follow guidelines set by the Federal National Mortgage Association, aka Fannie Mae, and the Federal Home Loan Mortgage Corporation, aka Freddie Mac, two companies chartered by the U.S. government to help standardize mortgage lending.

A monthly mortgage payment has four basic components: principal, interest, taxes and insurance — also known as PITI.

Compare that to FHA loans, which are insured by the Federal Housing Administration, or VA loans, which are covered by the U.S. government. 

If a loan is backed by a government agency, the government will cover your loan if you stop paying it. But that comes at a price, compared to the cost of a conventional loan. Here’s how to decide whether a conventional loan is a better fit for you.

How Do You Qualify for a Conventional Loan?

As with any loan, there are metrics you must meet to qualify for a conventional loan. When you apply for a mortgage, your lender will consider your current income (verified via paycheck stubs, W2s and tax returns) and employment status, in addition to these other criteria.

1. Down Payment

If you’ve heard anything about conventional loans, it’s probably that you need to have a 20% down payment to get one. 

And although putting 20% down will still get you the best terms with the lowest interest and fewest fees, coming up with 20% for a $200,000 home would mean a home buyer would need to have $40,000 — plus additional money for closing costs, inspections and moving. That’s not an easy bar to clear for most first-time buyers.

To attract more customers, lenders have relaxed the 20% rule.

“The lending market has become more competitive, and banks have what they call ‘conventional mortgages’ with 5% down,” Hamilton said. “Or they may run a special and call it a conventional mortgage with 1% down.”

Pro Tip

Although you may be tempted to throw every last dollar toward the down payment, hold onto enough money for an emergency fund — home ownership often comes with unexpected expenses.

If you do decide to put less than 20% down, lenders will require you to add private mortgage insurance (PMI), which is added as a monthly premium to your mortgage payment. 

After you have reached 20% equity in your home, you can call you lender and ask to cancel the PMI (cancellation should happen automatically once you achieve 22% equity).

2. Credit Score

The minimum credit score for a conventional loan is 620 to 640, depending on your lender. However, if you want to take advantage of the lower down payment option, you should plan on raising your credit score as much as you can before you apply.

If you can put down 20% and raise your credit score before you apply for a loan, you’ll be able to snag even better interest rates and terms.

3. Debt-to-Income Ratio

Your debt-to-income ratio gives the lender an idea of how much of your income is going toward paying off your debt each month. 

A “good” DTI for housing is around 25% while the maximum is typically 43%, according to Brent Weiss, CFP and chief evangelist of Facet Wealth. 

However, lenders have been willing to go even higher, given the right circumstances, according to Hamilton.

“[Lenders] will make exceptions if you have a lot of cash reserves,” she said. “Some lenders are going as high as 55% DTI with those exceptions.”

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How Much Can You Borrow? Conforming vs. Nonconforming Loans

Once you know whether you can qualify for a conventional loan, you’ll need to know how much you can borrow. 

For most people, that means applying for a conforming loan. This is a type of conventional loan that meets Freddie and Fannie requirements, so lenders prefer them and thus usually offer better interest rates.

In most of the United States, the maximum conforming loan limit for 2019 is $484,350 — you can find the maximum amount for your area on this conforming loan limits map.

Pro Tip

The majority of conventional loans are for 30 years, but it's possible to qualify for a 15- or 20-year mortgage loan, which could save you money on interest in the long run.

If you want to borrow more than the limit, you can still get a conventional loan but it will be a non-conforming jumbo loan, which can go as high as $1 million to $2 million. You’ll typically need a combination of really high credit score, large down payment and/or low DTI to qualify.

If you’re considering a non-conforming loan, it’s essential to shop around for the best rates and terms — and always ask for a loan estimate before signing anything.

What Are the Benefits of a Conventional Home Loan?

If you can qualify for a conventional loan, you can save thousands over the life of your mortgage in a couple ways.

For one, although the smaller downpayment on an FHA or VA loan might look attractive initially, both of those loans come with higher fees because the government is assuming the risk if you default on the loan.

Additionally, you can cancel the PMI for a conventional loan when you reach 20% equity in your home. If you have an FHA, you’ll pay the insurance (aka Mortgage Insurance Premium) for the life of the loan, which can really add up over 30 years.

“If your mortgage insurance is $50, $75, $100 per month, that’s quite a bit of money,” Hamilton said. “Buyers need to be aware of that added cost and how it can affect their ability to pay off the loan for that home to become a good investment vehicle.” 

If you still decide to go with a government-backed loan — whether by choice or necessity — consider re-evaluating the conventional loan option in the future.

“If you go FHA, then plan to do that assessment every year, every couple of years,” Hamilton said. “Check in and decide, ‘Should I refinance? What’s the best long-term strategy?’”

Consider it conventional wisdom.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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What Changes (And Doesn’t Change) When You Fix Your Finances?

78% of Americans live paycheck to paycheck. If a significant crisis hit the lives of that 78%, they would be in significant financial duress if they were to miss a single paycheck.

This, of course, means that the other 22% of Americans aren’t living paycheck to paycheck. They have a life such that if they missed their next paycheck, they wouldn’t be in any sort of major financial crisis – and for most, they could miss the check after that and the check after that and so on.

I’ve lived on both sides of this equation. Earlier in my life, I lived paycheck to paycheck. If I had missed a single paycheck for the first decade or so of my professional life, I would have been in instant crisis mode. Now, I’m on the other side of that. If I missed a paycheck today, it would be vaguely annoying and I’d want to fix the problem, but I wouldn’t start worrying about losing my house or how to put food on the table, even after several months.

What did that really change about my day to day life? I sat down and made a list of several things that really changed, along with a few things that I thought would change but didn’t. I thought it might bring some valuable insight to people who are trying to move out of the “paycheck to paycheck” group.

It won’t magically make you happy.

Almost always, people see the green grass on the other side of the fence and think that they’ll be happy once they get there. “If only I had my debts paid off and some money in the bank, then I’d be happy.”

Guess what? If you’re not generally happy now, getting your finances in better shape won’t magically make you happy. It will get rid of some serious irritations that can gouge your happiness (and we’ll get into that in a bit), but it won’t magically bring happiness into your life.

For a long time, I thought that getting my finances straight would make me a happier person, and when I got there, I realized I wasn’t really much happier than before, not at all. I can kind of judge that based on my own journal writings – I’ve been writing in a journal almost daily since I was a teenager, and I still have a lot of those entries in some form or another.

If I look at entries in my adult life when I was really financially struggling and I look at them after my wife and I got our financial ship in order, I find a roughly equal mix of positive and self-critical writing on both sides of the fence. I didn’t magically become this super-happy person. Rather, many of my personal concerns moved on to other areas.

I don’t believe there is a magical recipe for being happy. All you can do is cultivate a life where happiness blooms easier than before, but that won’t make you suddenly happy all the time. Life will always be imperfect and have struggles. However, I do believe that financial success can be a part of that cultivation of a life where happiness blooms, and here’s why.

A financial turnaround will get rid of a level of background stress that you probably didn’t even notice.

The biggest change I noticed in my day to day life was that there was this constant background stress related to money that gradually lifted away over time. Getting rid of it didn’t bring joy, but it made every other burden in my life feel a little lighter.

Before the financial turnaround, I felt a constant restriction on what I was able to do. I would often feel like I couldn’t do X or that Y was too big of a risk, and that just hung over every decision like a wet blanket. Sometimes, I’d just rebel against it and do things that I knew weren’t financially wise, and then I’d regret it and the loop would start all over. It was like carrying a wet blanket around on your back, occasionally tossing it off, only to find that it would land right back on you, soaked a little bit more.

After the financial turnaround, that wet blanket was gone, and the removal of it was so gradual that I didn’t notice it leaving until it was gone. It didn’t mean that I wasn’t still carrying burdens, but it meant that one particular wet blanket was gone.

Even more interesting, I basically lost my desire to do the things that were centered around “shaking off the wet blanket.” I used to just go spend money almost out of a sense of frustration about my financial state, like a weird form of self-destructive financial rebellion. The things I used to do completely lost their appeal once I had my financial house in order. I would do things like go to the bookstore and buy six books, or go out with friends and buy a round of drinks for no particular reason. I would often do that to show myself that I was “free” from that wet blanket of financial stress, even though I wasn’t; now that I am actually free of it, I feel no need to do those kinds of things.

It will also make peak stressful situations a lot less stressful.

Another positive change is that really stressful situations are now a lot less stressful than before.

Spending money on stuff that really doesn’t matter to you seems a lot more wasteful.

A big part of crossing over that line and leaving the land of paycheck to paycheck living is a careful consideration of the ways you’re spending money. You start looking at all of the stuff you buy and start asking yourself which ones really matter in your life and which ones do not.

Does the type of laundry soap you use really matter in any meaningful way? It might if you have hyper-sensitive skin or an allergy or something, but for most people, it really doesn’t have any consequence. You end up repeating that same question for a lot of things that you spend money on, from your household goods to your food, from your entertainment services to your cell phone plan options, from your insurance to your car and housing.

Because of that, you cut a lot of stuff. Usually, you end up realizing you cut too much and you miss a few things, so you bring them back (or it makes you so frustrated that you just go back to paycheck-to-paycheck life entirely).

But when you really cross that line into no longer being stressed out about the next paycheck, you’ll also begin to realize that your life is still really good in all of the ways you care about, and that all of that money you spent on the things you don’t really care about was pretty wasteful.

Eventually, that becomes something of a perpetual mindset. You begin to really doubt the point of spending money on things that you don’t care about very much. Why do it? Why throw money at something that’s pretty low down on the list of importance for you? There really isn’t a reason, but many people just do it out of habit and routine.

Your dreams and goals will shift in unexpected ways.

The same kind of thing happens with your dreams and goals, too. Many of the goals you once had will start to seem less important and meaningful, and other goals and dreams will pop up to replace them over time.

I used to have a lot of dreams about having a big, expensive house, but as I crossed that line, that dream began to feel more and more out of touch with my life. “I could do this now, but why?” This was true for a lot of different dreams I had.

Why? A lot of those dreams and goals were really about “shaking off the wet blanket” of debt and financial restriction rather than being in line with your values. My dream of having a big house in the country was, in many ways, a symbol of having achieved financial success. When I started to achieve financial success, I began to realize that the dream of a big country house was just a symbol, something that I wanted because having it would mean that I had achieved the kind of success I wanted in life.

The things I really wanted were a close-knit family, a lot of good relationships with friends, a lot of good connections in the community, health, hobbies that I deeply enjoy, and things along those lines. This was not fully clear to me until I actually had financial stability and a lot of those expensive things were easily within reach.

I could have that house in the country right now, but I actually don’t want it, at least not for the cost I’d have to pay. I could have an amazing car right now, but I actually don’t want it, at least not for the cost I’d have to pay. It turns out that what I really wanted was the financial stability to have those choices on the table, at which point they didn’t actually seem that appealing any more.

The fact that you can spend doesn’t mean that you do spend.

One key difference that I noticed is that I gradually began to recognize that money in my checking account doesn’t need to be spent as soon as possible.

Before the turnaround, I would often hit the ATM or online banking to check the balance of my checking account, and that balance would often determine whether I did something or not. If there was money in that checking account, I was going to spend it, sooner rather than later.

After the turnaround, I almost never check my balance. Why? I simply don’t feel the urge to spend money just because it’s there. I spend money when I really genuinely want something, not when there’s just an impulse to spend. If I listened to every impulse to spend, I would quickly be bankrupt and have more stuff than I could ever actually use.

Once you realize that you don’t actually need or deeply want all that much stuff, that you already have an absurd abundance in your life, the draw to spend just because money is burning a hole in your pocket fades out. It just isn’t there any more.

This takes a while. I found that a great intermediary step was simply automating a lot of my financial moves. I automatically contributed to my children’s 529 plans. I automatically contributed to my own retirement plans. My wife contributed to hers. I automatically contributed to an emergency fund. I set up a lot of automatic bill payments. I set up automatic savings for our next car and for irregular bills. As a result, there often wasn’t much cash at all left behind – enough to buy groceries and household supplies and to fill a small hobby budget and that was about it.

Eventually, though, I realized that I had a pretty good life without that money sitting in my checking account, and the feeling that I should be spending that money if it’s just sitting there kind of faded out.

Don’t get me wrong, there are still things I want to buy, but that impulsive need to spend just because there was money in my checking account faded away.

You feel a little less tied down.

One thing I didn’t realize when I was living paycheck to paycheck is how intimately tied I was to the ordinary routines of my life, particularly my job. Part of the reason I was so diligent about my job and wound up working weekends and traveling a lot is because I was scared to lose the job. I was living paycheck to paycheck, so if I lost that paycheck, things very quickly went south in my life.

As I began to achieve financial stability, I began to look at my job without the weight of absolutely needing that next paycheck and I didn’t like some aspects of what I saw. I probably leaped into a career change more abruptly than I needed to, but it was really an act of freedom. That job that I felt lassoed to, that I needed to stick with, lost that stickiness. I didn’t need to be there.

At that point, I felt much more free to look at other job options and other career paths. If the transition was bumpy, that would be okay – we weren’t living paycheck to paycheck. If my pay was lower for a while, that was okay. If I went for a period without pay, that was okay, too.

What this left me with was the freedom to look for work that was more meaningful to me. I felt that aspects of my previous career, particularly the time spent with coworkers and the time spent on actual tasks that pushed me intellectually, were meaningful, but the rest of it was not and the rest was eating up more and more of my time there.

I wanted work where most of what I did was meaningful and that wound up being writing for The Simple Dollar, something that I’ve been doing for quite a few years now. Most of my time is spent on stuff that’s meaningful to me, I feel like I’m helping people, I often get to dive into topics that force me to think deeply, and I’ve met some interesting folks along the way. That’s really all I want from a career, but I would never have made the leap when I was living paycheck to paycheck.

My wife and I bickered less.

Before our financial turnaround, particularly in the final year or so of our paycheck to paycheck life, my wife and I bickered a lot. Granted, there was a lot on our plate. We were really struggling financially. We had our first child. We were both dealing with some mild career frustrations. Everything wasn’t turning out exactly like we’d hoped a few years before.

It felt like a couple times a week we were disagreeing about something and it usually escalated to the point that we wouldn’t talk to each other for 24 or 48 hours other than to communicate very basic info.

What I found is that after the financial turnaround and after we began to break away from paycheck to paycheck living, our bickering virtually stopped. We rarely disagree these days and when we do, we usually just have a calm conversation about it.

I think what changed is that money issues make you feel like you’re constantly on the edge of losing so much more. I used to feel like we were always a few months away from living out of a car or moving back in with our parents. Today, I don’t feel that way at all – it’s more likely that our parents would move in with us, I think. I used to feel like any minor issue at work could be the first stone that causes everything to come tumbling down. Now, I see a lot of those minor issues as things to be trivially dealt with.

As a result, we simply get along better now than we once did. Our disagreements are far less frequent, and when they do occur, they’re handled in a much more civil fashion. Because of that, we’re both more open to having difficult conversations with each other, and because of that, our bond has deepened over time.

In the end…

Moving from a paycheck to paycheck life to one where you don’t have to worry much about it seems like it’s solely a financial transition, but that financial transition ripples throughout your life in ways that are mostly good, occasionally awkward, and sometimes strange. It opens the doors to different ways of approaching relationships, approaching life goals, handling stress, and dealing with daily life.

Personal finance success is really about much more than the dollars and cents. It’s about finding stability and meaning, and much more.

Good luck.

The post What Changes (And Doesn’t Change) When You Fix Your Finances? appeared first on The Simple Dollar.

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Capital One Mortgage Rate Review

Capital One began its business in 1994 in Richmond, VA. This bank offers plenty of lending options for businesses and commercial properties, such as loan syndications, multifamily property financing, SBA loans, and more.

Capital One has a BBB rating of one and a half out of five stars and a TrustPilot score of two out of five stars.

Table of Contents:

• Overview
• Capital One Rates
• Mortgage Options
• Mortgage Qualifications

Capital One Overview

Capital One has 755 branches and 2,000 ATMs across the U.S., U.K., and Canada.

Even though this bank is primarily known for its credit card services, Capital One also has a business and commercial banking divisions, which focus on various types of lending.

Capital One announced in late 2017 that they would no longer offer mortgages on single-family homes due to the complexity of the market.

It is undetermined if Capital One will offer mortgage rates again.

Current Capital One Mortgage Rates

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Capital One Mortgage Options

Capital One offers a wide selection of commercial and business loans, including:

Loan Syndications

Capital One offers flexible options for companies that need a credit structure that exceeds the limits set by many other banks. It works with business owners to structure a transaction that makes sense for both parties.

Syndicated loan agreements provide borrowers with efficient access to large amounts of credit, reduce the time spent negotiating credit agreements, improve financial control, and require only one request to decrease funds and create any changes to this transaction.

Business owners can use this funding as working capital, which they can use toward expenditures, acquisitions, and renovations.

Commercial Real Estate Lending

People looking to invest in a hotel, restaurant, shopping center, or other forms of commercial real estate can look into Capital One’s flexible options. This bank understands the importance of having enough working capital in commercial real estate. For this reason, it works cohesively with borrowers to create effective transactions for their specific needs.

Multifamily Property Financing

Capital One works with investors interested in purchasing multifamily real estate properties. Whether they want to be a landlord or want to go in on an investment with a group, it offers assistance and loans to help people achieve their goals.

Small Business Administration Loans

Small business owners might need to borrow some funding in order to achieve their goals. Small business loan options allow for longer payback terms and higher borrowing limits than many other conventional bank offerings. Some of their small business administration loan offerings include:

• SBA 504 Loan Program, which works with a private, non-profit company that works to develop local communities
• SBA 7(a) Loan Program, the most basic business loan: benefits include long-term financing, no balloon payments, and fixed maturity

Capital One Mortgage Customer Experience

Capital One offers plenty of explanations on its products on its website, whether you’re wondering about business lending or commercial loans. There is also an FAQ section, which answers the most common questions associated with these types of lending.

Capital One has received a substantial amount of recognition since its founding. It was named one of the “World’s Most Admired Companies” by FORTUNE. It is also considered one of the “Civic 50” Most Community-Minded Companies in the S&P 500.

Additionally, it was awarded several times for being “a great place to work,” especially regarding diversity and the millennial workforce.

The lender has experienced a few scandals in the credit card sector, however. One instance in 2012 caused the corporation to pay $210 million in settlement charges regarding the “deceptive” marketing of various credit card add-on products, according to Business Insider.

Capital One Lender Reputation

Founded in 1994, Capital One is a large bank that offers a variety of financial services, including commercial and business lending. Thanks partly to its 194 complaints on BBB, it has an overall score of one and a half out of five stars. It also has a TrustPilot score of two out of five stars, according to its 50 online ratings.

While these numbers may be justifiably worrying, it’s important to keep in mind that satisfied customers rarely give feedback, whereas disgruntled ones are more likely to do so. Considering Capital One’s fairly recent issues in the credit card sector, it’s surprising that the bank’s reviews aren’t worse. 

• Date Collected: Nov. 7, 2018

Capital One Mortgage Qualifications

Generally, applying for a business or commercial loan requires borrowers to meet certain minimum qualifications. Lenders’ requirements can vary, but most typically require information on the following:

Credit Scores

Most banks, including Capital One, take borrowers’ credit scores into consideration when qualifying individuals for loans. Business owners might also consider building their business credit to apply for more flexible loan options.

Financial Documents

Many different lenders request that business owners and commercial real estate investors provide them with the following:

• Personal and business tax returns
• Balance sheet
• Income statement
• Commercial leases
• Business licenses
• Personal and business bank statements

Adequate Collateral

Many lenders require their borrowers to offer up some sort of asset that the lender can seize if the borrower cannot make their payments on time.

Capital One Phone Number & Additional Details

Homepage URL: https://www.capitalone.com/
Company Phone: 703-448-3747
Headquarters Address: Capital One, 1680 Capital One Dr., McLean, VA 22102

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