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If you’re thinking of buying a home in Boise, ID, you’ll likely need some financial help to finance such a significant purchase. That’s exactly why mortgages exist.
But there are a variety of home loan programs available, depending on your particular needs and financial profile. And one of the most commonly-used mortgage products is the conventional mortgage.
It’s important for homebuyers to understand what conventional mortgages are and how they work before taking one out.
Here are a few commonly asked questions about conventional mortgages in Boise, and the answers to each.
A conventional mortgage is one that is not guaranteed or insured by the government. Instead, they may be insured by private insurance companies based on the down payment put forth and the loan-to-value (LTV) ratio.
This type of loan differs from others, such as FHA and VA loans, which are government-backed home loan programs. Since the government does not guarantee conventional loans, these mortgage products are a bit riskier for lenders. For this reason, conventional mortgages tend to have stricter criteria compared to government-backed loans to help mitigate the risk that lenders assume when they offer these types of home loans.
As mentioned, conventional loans are not insured by the government. However, if less than 20% is put down towards the purchase price of a home, the mortgage must be insured. But rather than being covered by a government entity, a conventional mortgage will be insured by a private insurance company.
With a down payment of less than 20%, Private Mortgage Insurance (PMI) will need to be paid. This insurance is provided by a firm within the private sector. In order to avoid having to pay PMI, you would need to come up with a down payment of at least 20% of the purchase price of the property.
That’s not to say that you will be stuck paying PMI throughout the life of the mortgage. There is a way to eliminate PMI at some point during your mortgage term.
To do so, you will need to bring your home loan balance down to 80% of the property’s original appraised value. At this point, you can request that your lender cancel the PMI. Once you bring the loan balance down to 78% of the value of the home, your lender will be required by law to eliminate your PMI.
In Boise, you will have certain loan limits to comply with. Going over these limits will constitute your mortgage as a “jumbo loan,” which refers to a home loan that goes over the limits established by the Federal Housing Finance Agency (FHFA).
Each year, loan limits for conventional loans are set by FHFA. These limits typically coincide with changes in average home prices across the nation and vary based on location. Conforming loan limits are usually determined late in the year and take effect on January 1st each year. Each county will have its own loan limit for conventional loans.
In 2021, the conforming loan limit for Boise is $548,250, which is up from 2020’s conforming loan limit of $510,400. That means if you take out a mortgage for less than $548,250, you will be within this year’s loan limit threshold. If you take out a mortgage that’s over this limit, your home loan will be considered a jumbo loan.
Right now, Boise’s average home price currently sits at $379,161, according to Zillow. That’s a far cry from the conforming loan limit, so you should have little trouble finding a home that is priced under the loan limit mark for 2021.
Like any other type of mortgage, lenders will assess each applicant before a mortgage is approved, and conventional loans are no exception. The following are some of the requirements needed to get approved for a conventional loan:
Good credit score. A minimum credit score of 620 is needed to get approved for a conventional loan. Ideally, a higher score is even better, as this will help increase your odds of approval. That said, even with a minimum credit score of 620, you may need to have a higher down payment amount or a strong income.
Minimum 3% down payment. You can put as little as 3% down for a conventional mortgage. Having said that, a higher down payment is always best. Not only will it decrease your loan-to-value (LTV) ratio and reduce your loan amount, but it will also improve the odds of getting a lower interest rate on your mortgage.
Strong income. Your income will need to be high enough to support a mortgage in addition to all the other debts you are currently responsible for paying down. Lenders will look at your debt-to-income (DTI) ratio, which is a measure of your gross monthly income that is dedicated to covering your monthly bills.
For conventional home loans, the highest DTI allowed is 50%. But for the best chance of getting approved, your DTI should be no more than 45%. The exact DTI allowed will depend on your specific situation.
Manageable debt levels. The amount of debt you currently carry will be assessed to ensure you’re not stretching your finances too much. Plus, your debt will be measured alongside your income, as just mentioned.
If you need help from an experienced mortgage broker, Sammamish Mortgage can help. We are a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as the broader Pacific Northwest region that includes Idaho, Colorado, and Oregon. We have been offering a wide variety of mortgage programs and products with flexible qualification criteria since 1992, and we’d love to help. Please contact us if you have mortgage-related questions.
As a matter of custom and tradition, autumn was never the high water mark for house shopping, though there are some benefits to doing so. Re-locators, generally, like to be in their new digs by the time school starts. As with so many things, however, the ebb and flow of real estate transactions look different in the year 2021.
Summary: Home prices in the Boise area have increased rapidly over the past year or so. As such, federal housing officials recently announced that the 2021 conforming loan limit for Boise will be increased. Boise’s median home prices have increased…