By Bill Lyons | Updated on February 2, 2024
TABLE OF CONTENTS

    A conventional loan for first-time home buyers is a traditional mortgage loan that meets the parameters set by Freddie Mac or Fannie Mae. Conventional loans require some percentage of down payment, depending on the mortgage you choose, and your credit score typically must be 620 or higher. In addition to credit score, conventional loans for first-time home buyers take into account other factors, such as a potential borrower’s income, debt-to-income ratio, employment status, and more. 

    At Griffin Funding, we offer fixed-rate and adjustable-rate conventional loans for first-time buyers. We provide borrowers with competitive rates and excellent customer service. Read on to learn more about what conventional loans are, how they work, and who can qualify for them. 

    What Is a Conventional Loan?

    A conventional loan is a mortgage loan that is approved using traditional means. You must have a credit score of at least 620, and you choose between a fixed-rate, adjustable-rate, or jumbo loan for your new home or investment property. 

    When you have a credit score of 620 or higher and can show your proof of income easily, a conventional loan can offer you excellent terms for your new mortgage. Aside from conventional loans, there are also Non-QM loans available, which are non-traditional loans that aren’t considered qualified loans by the Consumer Financial Protection Bureau (CFPB). A specialized program—such as a VA loan—can also be a good option for first-time home buyers who qualify. 

    Types of Conventional Loans

    A conventional loan is one that meets the requirements set forth by Freddie Mac or Fannie Mae. You must meet certain qualifications in order to secure conventional loans for first-time home buyers. Below, we go into more detail about the types of conventional loans available and what each entails. 

    Fixed-Rate Mortgage

    A fixed-rate mortgage is one where the interest rate of the loan does not change throughout the life of the loan. If you’re looking for a home loan that provides consistency and stability in terms of the payments you will be making, a fixed-rate mortgage can be a good option. 

    Adjustable-Rate Mortgage

    An adjustable-rate mortgage fluctuates as interest rates change. With an adjustable-rate mortgage, you typically pay a fixed interest rate for a predetermined period of time, after which your rate changes based on market conditions. 

    While adjustable-rate mortgages don’t provide the stability that fixed-rate mortgages do—and you run the risk that your interest rate will increase—it can be a good choice if you expect interest rates to drop in the future. 

    Jumbo Loans

    A jumbo loan is one that exceeds lending limits set by Fannie Mae and Freddie Mac. Jumbo loans can be used to purchase expensive homes or larger properties. A jumbo loan can be used to buy a primary residence, vacation home, or investment property.

    Investment Property Loans

    An investment property loan will take into consideration the your income plus the income that will be produced by the property you are purchasing with the loan. If your investment property loan is a conventional loan, you don’t have to reside in the property as part of the conditions of purchase.

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    Conventional Loan Requirements

    There are a number of requirements you must meet in order to qualify for a conventional loan as a first-time home buyer. Below are some of the key requirements to account for as you consider applying for a conventional loan.

    You’ll Need a Down Payment

    For a conventional loan, you will need to provide a down payment on the property you’re interested in. The down payment amount depends on your financial situation and the specific loan you obtain.

    While a down payment for a conventional loan can be as low as 3%, many people opt to put closer to 20% down, as this lowers their monthly mortgage payment and reduces the amount they have to pay in interest over time. If you choose an adjustable-rate mortgage, you will need to pay at least a 5% down payment, regardless of the loan you receive.

    You May Need PMI

    PMI, or private mortgage insurance, is required if you want to use a conventional mortgage to purchase your property with less than 20% down. If you were to default on your loan, private mortgage insurance protects the lender. 

    The price you pay for PMI will be determined by what type of mortgage you choose, what your credit score is, and how much of a down payment you put down. You can typically add PMI to your mortgage payment, or you can choose to pay for PMI as part of your closing costs. Speak with your mortgage specialist to choose the best way to pay for PMI if it is required.

    Once you have 20% equity in your home, the PMI can be removed from your mortgage without having to refinance. If home values rise, you can ask to have your home appraised to see if you have reached enough equity to remove the PMI on your home.

    Your Credit Score

    Your credit score is an essential component when it comes to obtaining a conventional mortgage. For conventional loans for first-time home buyers, you will need to have a credit score of at least 620. Those with higher credit scores are typically able to qualify for lower interest rates and more beneficial loan terms. 

    Your Debt-to-Income Ratio

    Your debt-to-income ratio is how much debt you have to pay every month versus how much income you have coming in. This gives lenders a way to determine if you are able to handle the added cost of a mortgage every month. To calculate your DTI, you add up all the minimum monthly payments on all debt and divide it by your total gross income monthly. To get a conventional mortgage, your DTI typically must be lower than 50%.

    The Size of Your Loan

    The size of your loan is important when trying to get a conventional loan. While this amount changes annually, the baseline conforming loan limit going into 2024 is $766,550. Keep in mind that loan limits may be higher in areas where home prices are greater than average. 

    How to Get a Conventional Loan as a First-Time Home Buyer

    There is a ten-step process to apply for a mortgage loan with Griffin Funding. We work hard to simplify the process, as we understand that securing a mortgage can feel overwhelming. The ten-step process for getting a conventional loan as a first-time home buyer is as follows:

    1. Schedule a discovery meeting to speak with a mortgage specialist in order to learn more about your mortgage options and qualifications. This can take place in person, virtually, or on the phone.
    2. You will fill out an application either at the time of your discovery meeting or shortly afterwards. You can have the loan specialist help you in this process if you decide Griffin Funding will be your mortgage lender.
    3. All you need to do for step 3 is give the loan specialist permission to lock in the rate you were quoted when you applied for your mortgage.
    4. In this step, you will either receive your loan application digitally or via overnight mail. Once received, you can review and sign the application.
    5. You will receive a list of the documentation you need to have in order to secure your mortgage. This makes it easier to figure out exactly what you need to get the mortgage you want.
    6. Your mortgage paperwork goes to our underwriting department in order to be processed and approved for payment.
    7. Your property will need to be appraised and inspected for pests. 
    8. The documentation is finalized and your loan is approved.
    9. All pages of your loan will be officially signed.
    10. In the last stage, the loan is funded and recorded.

    Apply for a Conventional Loan Today

    A conventional loan allows you to buy a primary home, vacation property, or investment property when you have a high enough credit score, income, and down payment. If you’re interested in securing a conventional loan through Griffin Funding, get a quote or reach out to one of our loan specialists.

    Frequently Asked Questions

    Which conventional loan is best for first-time home buyers?

    The best mortgage loan will depend on what you are looking to purchase. When applying for a loan, consider your own financial situation, the type of property you’re purchasing, and the price of the property. If you’re unsure which type of conventional loan is best for you, reach out to us and we can help you review your options. 

    What credit score is needed for a conventional loan?

    You will need to have a credit score of at least 620 to obtain a conventional mortgage loan.

    What is the minimum down payment needed for a conventional loan?

    In order to obtain a conventional loan as a first-time home buyer, you will need to provide a down payment that ranges between 3% and 20%, depending on the specific type of loan you take out.

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.