By far the mortgage programs with the greatest market share in Florida are conventional loans. Conventional loans are typically underwritten by guidelines established by both Fannie Mae and Freddie Mac but technically they are loans that do not come with a government-backed guarantee to the lender, including VA, FHA and USDA home loans. With a conventional loan, the lender carries the entire risk of approving a loan and should the loan go into default, the lender must foreclose without compensation.
When considering buying and financing real estate in Florida, a conventional mortgage is often the first choice and provides the buyers with more flexibility compared to other mortgage programs. For instance, government-backed loans can only be used to finance a primary residence whereas a conventional loan can be used to finance not only a primary residence but also a beach home or an investment property.
Conventional loans require a down payment but depending upon the program, the down payment can be as low as 3% for conforming loan amounts. The conforming loan amount limit in Florida is currently $726,200 and is expected to remain at that level throughout 2023. Monroe County is the only exception, their limit is $874,000
The standard down payment for a conventional loan is 20% but can be lower if accompanied by a mortgage insurance policy. Down payments can be as low as 5% but there is a special Fannie Mae loan called the Conventional 97 that asks for only a 3% down payment. For down payments less than 20%, a private mortgage insurance policy can be purchased that will compensate the lender the difference between a 20% down payment and what the borrowers put down in the transaction.
Conventional loans also have a greater variety of financing options. Beyond the 30 year fixed rate loan, borrowers can choose from loan terms ranging from 10 to 30 years in five-year increments, or 10, 15, 20, 25 and 30 year terms. Lenders also offer so-called “hybrid” loans that are fixed for an initial period before changing into a loan program that can adjust annually. These loans are referred to as 3/1, 5/1, 7/1 and 10/1 loans, with the first digit representing how many years the initial rate would be fixed. The allure of the hybrid program is the start rate is slightly lower than a similar fixed rate loan.
When lenders issue interest rates for conventional loans, they refer to a table called a Loan Level Pricing Adjustment that considers the qualifying credit score of the borrowers along with the amount of down payment the buyers are bringing to the table. Borrowers with a credit score of say 620 and a down payment of 5.0% will have slightly higher interest rates compared to borrowers with a 20% down payment and a qualifying credit score of 720, for example.
Conventional loans also require income and asset documentation as well. Income is verified by reviewing the most recent paycheck stubs covering a 30 day period along with W2 statements from the past two years. Self-employed borrowers are asked to provide their most recent two years of federal income tax returns along with a year-to-date profit and loss statement.
Bank statements from the previous two months will also be required for all borrowers. Conventional loans can also be used to finance not just a single-family residence but a condo, a multi-unit property up to four units and PUDs.
For borrowers interested in learning more, please call us at ph: 904-810-2293 or just submit the Quick Request form on this page. Coast2Coast is proud to serve buyers 7 days a week.