Unless you have enough cash to purchase your next home outright, it won’t be long before you consider your borrowing options. And for many people, this means securing a conventional mortgage.
If you live in South Carolina—or any other state in the U.S.—you’re eligible to apply for a conventional mortgage.
Before you do so, learn more about this type of loan and how it will impact your finances now and in the future.
What is a conventional mortgage?
A conventional mortgage is best defined as a conforming loan that meets Fannie Mae or Freddie Mac requirements.
These are government-sponsored organizations that purchase mortgages from lenders. This means they’re backed by the private sector rather than a government program.
By doing this, lenders have more funds to help more borrowers qualify for loans, which helps the real estate market and the economy as a whole.
Conventional loan requirements
While conventional loans have some of the strictest borrowing requirements, many homebuyers find that it’s perfect for what they’re trying to accomplish. The following are some of the most important requirements to familiarize yourself with.
1. Down payment
The down payment requirement varies from person to person.
For instance, if you’re a first-time homebuyer, you can make a purchase with as little as 3% down. However, if you’ve purchased a home in the past, the minimum increases to 5%.
It’s ideal to put down a minimum of 20% to avoid private mortgage insurance (more on this below), but it’s not a requirement with a conventional loan. This can help if you don’t have enough cash on hand.
2. Private mortgage insurance (PMI)
If you put down less than 20%, you’re required by your lender to purchase private mortgage insurance (PMI). This protects the lenders in the case that the borrower defaults on their loan.
While it’s an additional cost, you can ask for it to be removed once you have 20% equity in your home by making monthly mortgage payments.
3. Credit score
A credit score of 620 or above greatly increases your chance of approval. If your score is below 620, take steps to increase it before applying. This can include but is not limited to paying down your debt, requesting higher credit limits, and avoiding late payments moving forward.
4. Loan size
Here’s what the Consumer Financial Protection Bureau has to say about conventional mortgage loan size requirements:
Loan amount must be $647,200 or less in most counties and may be as high as $970,800 in high-cost counties.
Keep this in mind as you set a budget for your home purchase. If it’s possible that you’ll spend more than this limit, it’s best to line up other options as a backup. Research limits for the area you’re hoping to buy so that you’re not surprised if have to get a different loan.
5. Debt-to-income ratio (DTI)
This measures how much of your monthly income is used to pay off debt. For most conventional mortgages, lenders seek a DTI of 50% or less.
Just as with your credit score, you may need to work to reduce your DTI before applying for a conventional mortgage in South Carolina.Check your mortgage options
The biggest benefits of a conventional mortgage
Understanding the top benefits of a conventional mortgage allows you to make an informed decision as to whether it’s the right choice. The following are some of the biggest benefits to homebuyers.
1. Low down payment requirement
As noted above, if you’re a first-time homebuyer, you can proceed with as little as 3% down. This is much more attainable than a 10-20% down payment associated with other types of mortgage loans.
Use a mortgage payment calculator to understand how different down payment amounts affect your monthly obligation and the amount of interest paid over the life of your loan.
2. Various mortgage types
For example, you can opt for a fixed rate or adjustable rate mortgage. There are also various terms to choose from, such as 15-year and 30-year. These options allow you to customize a loan that suits your financial circumstances.
3. Jumbo loan availability
A jumbo loan is one that exceeds the Federal Housing Finance Agency’s (FHFA) limits for conventional loans bought by Fannie Mae or Freddie Mac. Although it’s a non-conforming loan it’s still considered conventional.
Tip: Use our loan comparison calculator to help determine which type of mortgage aligns best with your finances and goals.
The South Carolina housing market
With so many homebuying opportunities throughout the state, from coastal communities to inland cities, it’s good practice to keep an open mind. Use an online service such as HomeScout to ensure that you don’t miss out on your dream home.
Here are some details of the South Carolina housing market that may affect your final decision.
- The median sales price in December 2022 was $369,500
- Home prices have increased by 11%, year-over-year in December 2022
- The number of homes for sale fell by .5% in December 2022
While the South Carolina housing market is healthy, buyers are in a stronger position than they have been over the past two years. This is good to know as you begin your search for a home and negotiate with sellers.
Here are the 10 metro areas in South Carolina where home prices are growing at the fastest rate:
- Boiling Springs
- Red Hill
- Surfside Beach
- Carolina Forest
- North Charleston
Apply for a South Carolina conventional mortgage today
Even if you’re not ready to purchase a home today, it doesn’t cost you anything to get prequalified for a conventional mortgage.
At AAA Banking, we make it easy to get started. Supply your ZIP code and some basic information about yourself and you’re well on your way.
For personal service, contact us via phone at (844) 897-2265 M-F, 8-8:00 pm EST to connect with a loan professional. We’re here to help you understand how a conventional mortgage works, if it’s right for you, and what comes next.
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