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Conventional Loans FAQ | Money Well Lending, LLC

Conventional Loans FAQ

When should I choose a conventional loan instead of other mortgage types?

Conventional loans are ideal if you have a stable income, a good credit history (generally a credit score of at least 620), and can afford a down payment between 3% and 20%. They often provide better long-term savings compared to FHA loans due to lower or avoidable mortgage insurance costs.

A homebuyer in Vancouver, WA with a credit score of 690 chose a conventional loan to buy a $550,000 home, putting down 5% and avoiding higher long-term costs associated with FHA mortgage insurance.

How do I avoid paying Private Mortgage Insurance (PMI)?

You can avoid PMI by making a down payment of at least 20%. Alternatively, once your home equity reaches 20-22% (through payments or home appreciation), you can request to cancel your PMI or refinance into a new loan without PMI.

A borrower bought their home with a 10% down conventional loan, but after a few years, property values rose enough to reach 20% equity. They refinanced, removing PMI and lowering monthly payments.

Can I use a conventional loan to buy an investment property?

Yes, conventional loans are well-suited for investment properties, typically requiring between 15%-25% down. Interest rates remain competitive, making them a popular choice for investors.

An investor in Salem, OR purchased a rental duplex worth $600,000 using a conventional loan, making a 20% down payment. The property's rental income covered monthly mortgage expenses comfortably.

What documents do I need to apply for a conventional loan?

Typical documentation includes recent pay stubs, W-2 forms, tax returns (two years), bank statements (two months), identification, and details of your credit history. Self-employed applicants will typically provide two years of complete tax returns to demonstrate consistent income.

A self-employed web designer successfully obtained a conventional loan by submitting bank statements and two years of tax returns demonstrating steady earnings.

Is refinancing from an FHA loan to a conventional loan beneficial?

Refinancing from FHA to a conventional loan can eliminate costly FHA mortgage insurance premiums, reduce your monthly payment, and potentially secure better interest rates, especially if your home's value has increased significantly.

A homeowner in Vancouver, WA refinanced from an FHA to a conventional loan after the home’s value increased, removing their monthly mortgage insurance cost and reducing overall payments.

Can conventional loans work well for self-employed borrowers?

Absolutely. Conventional loans are very flexible for self-employed borrowers who can document their income clearly through tax returns or bank statements for the past two years.

An independent consultant successfully qualified for a conventional mortgage on a $400,000 home by providing two years of tax returns and business financial records.

How much should I budget for conventional loan closing costs?

Closing costs generally range from 2% to 5% of your home's price. These expenses cover appraisal fees, title insurance, origination fees, and underwriting charges. Buyers can sometimes negotiate to have sellers pay part of these costs.

A homebuyer negotiated with a seller who agreed to cover half of the closing costs, reducing out-of-pocket expenses significantly at the time of purchase.