A conventional mortgage in Indiana is one of the types of home loan you can use to buy a property or refinance your existing mortgage.
Conventional mortgages can offer eligible borrowers significant benefits such as no mortgage insurance.
For borrowers with good credit and who are looking for ways to save on long-term costs, a conventional mortgage in Indiana could be a good choice.
In this article, we’ll look at
- What is a conventional mortgage?
- What are the requirements for a conventional mortgage in Indiana
- FHA vs. conventional mortgage
- How to know if a conventional mortgage is right for you
What is a conventional mortgage in Indiana?
Home loans that aren’t backed by or secured by a government agency are called conventional loans or mortgages.
Conventional home loans come in two different formats: conforming and non-conforming.
Conventional loan limits in Indiana
Conforming mortgages are those loans that follow the Fannie Mae and Freddie Mac guidelines and are for amounts less than the “conforming” loan limit.
For most parts of the United States, the loan limit for single-family homes in 2022 was $647,200. However, in higher-cost areas, the single-family limit is $970,800.
Non-conforming loans, sometimes called jumbo loans, are for loan amounts higher than the loan limits. Because of their higher loan balance, Fannie and Freddie won’t purchase them.
What are the conventional loan requirements in Indiana?
Some borrowers find qualifying for a conventional mortgage in Indiana a little harder compared to an FHA mortgage or other government-insured loan.
Because conventional loans lack a government “guarantee” to safeguard the lender against financial losses if the borrower defaults on the loan, they carry more risk with conventional mortgages.
While conventional mortgage requirements can vary depending on the lender you’ve chosen, the general requirements for a conventional mortgage in Indiana include the following.
Down payment
The minimum conventional mortgage down payment is 3%.
Borrowers with a down payment of less than 20% are typically required to pay private mortgage insurance (PMI). However, borrowers who put 20% or more down don’t need to pay PMI.
Mortgage insurance
There are no upfront mortgage insurance fees with a conventional mortgage. PMI is only necessary when a down payment is under 20%.
Minimum credit score
Most lenders typically look for a minimum score of 620. However, higher credit scores will generally result in better interest rates.
Debt-to-income (DTI) ratio
Most lenders typically look for a maximum ratio of 43%, but some lenders will only work with borrowers with a maximum DTI of 36%.
Property type
Unlike government-backed loans, which can only be used to purchase a home you live in, you can use the funds from a conventional mortgage in Indiana to buy any type of property you want, including rental properties or investment properties.
Get started with a conventional purchase mortgageFHA loan vs. conventional mortgage
Conventional loans are typically less expensive compared to FHA loans, for both closing costs and over the loan’s lifetime.
Conventional mortgages don’t require an upfront mortgage insurance fee. And borrowers who make a large enough down payment can usually avoid paying any mortgage insurance.
If you pay less than 20% for your down payment, expect to pay mortgage insurance at the beginning. Once your loan hits an 80% loan-to-value ratio, however, you can request cancellation of your insurance premiums.
By contrast, borrowers have to pay mortgage insurance for the entire time they have an FHA loan.
Conventional mortgages also offer smaller down payment requirements.
Benefits of a conventional mortgage in Indiana
Let’s look at some of the advantages of conventional mortgages.
Property limitations
Conventional loans don’t limit the type of home you purchase or its location.
By contrast, FHA and VA home loans require the property you’re buying must be your primary residence, and USDA loans set geographic limitations on the location of eligible properties.
Competitive interest rates
Conventional mortgage rates are typically lower than most government-backed loans, especially for borrowers with good credit, employment, and income verification.
Lower interest rates can add up to thousands of dollars in accumulated savings throughout the lifetime of your home loan.
To estimate how different interest rates can affect your monthly mortgage payment, use a mortgage payment calculator.
Lower down payment requirements
Requiring a minimum down payment of just 3%, conventional mortgages offer smaller down payment options than FHA home loans and most other loan products.
Higher loan ceilings
Conventional loans are available for homes that cost more than Fannie Mae and Freddie Mac loan limits. That makes conventional loans ideal for unique properties or high-cost areas requiring a jumbo loan.
Quicker closing
Another advantage of a conventional mortgage is the time it takes to close on your loan.
Conventional mortgages typically close much more quickly than other loan products. For example, FHA home inspections can often delay closing for days or even weeks.
Additionally, many conventional mortgage lenders handle the entire approval process in-house, significantly reducing the time required to close.
What are the conventional mortgage rates like in Indiana?
Conventional mortgage rates change daily and can differ depending on which lender you choose.
Conventional rates in Indiana are competitive with government-backed loans, like FHA and VA loans, while usually offering fewer fees.
Borrowers with good (i.e., higher) credit scores can often find lower interest rates with a conventional loan than with other loan products.
While conventional mortgages come in a variety of terms, the most common terms are the 15-year and 30-year fixed terms.
Pro tip: Use a loan comparison calculator to see just how much you could save with a conventional mortgage compared to other loans.
How to know if a conventional mortgage is right for you
If you have good credit and you’re looking for a mortgage that offers a host of advantages, a conventional loan in Indiana could be right for you.
Unlike government-insured loans, you don’t have to pay program-specific fees—like the VA funding fee—with a conventional mortgage.
And, even if you don’t have 20% saved for a down payment, you can still eliminate PMI once you’ve built up enough equity in your home.
How to apply for a conventional mortgage loan in Indiana
Conventional home loans in Indiana offer borrowers competitive interest rates, low down payment requirements, and an option to avoid paying mortgage insurance.
If you’ve got good credit and are considering buying your first home or refinancing your existing mortgage, a conventional mortgage in Indiana might be a good option.
At AAA Banking, we want to hear about your homebuying goals and discuss how we can help you reach them. Reach out to a licensed home loan officer at AAA Banking today
Start your conventional mortgage application.Photo by RODNAE Productions