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A Conventional Mortgage in Connecticut Top 10 Things to Know

Buying a home is a big step. In addition to deciding where you’ll live, how much you can afford and how long you might stay in the home, you also have to decide which kind of mortgage loan you’ll take out. The three most common types of U.S. mortgage loans — FHA (Federal Housing Authority), VA (Department of Veterans Affairs) and conventional — all offer different incentives.

But what exactly is a conventional loan? And is it your best option when buying a home in the Constitution State? Here are 10 things you need to know when considering a conventional mortgage loan in Connecticut.

1. What is a conventional mortgage?

A conventional mortgage is a private-sector home loan that isn’t backed by the federal government. Conventional mortgage loans need to follow the guidelines first set by Congress in 1938 in order to “provide liquidity, stability and affordability to the mortgage market.” Conventional mortgages are the most common type of loan and account for 60% of all mortgage applications.

2. Who are Fannie Mae and Freddie Mac?

These two entities were created by Congress in order to provide a reliable supply of mortgage loan funds throughout the country. Fannie Mae was created first in 1938 as a response to the Great Depression, to help hard-hit families afford homes again. Freddie Mac was another private company created by Congress in 1970 to sustain this need; both are now shareholder-owned companies that operate under a congressional charter.

3. FHA vs. conventional mortgage: How do they compare?

To help discern the differences between conventional and government-insured loans, here’s a helpful chart comparing their features.

Conventional FHA VA USDA
Backed By Fannie Mae or Freddie Mac U.S. Federal Housing Administration U.S. Department of Veteran Affairs U.S. Department of Agriculture
Min Credit Score 620-640 (depending on the lender) 500-580 (depending on the lender) No minimum credit score requirement . No minimum credit score requirement
Max DTI (debt-to-income ratio) 35% (through some lenders accept 43%) 45%-50% (depending on the lender) 41% 41%
Min. Down Payment 5% (though 3% down options are available) As low as 3.5% down $0 down payment $0 down payment
Eligible Property Types Any property type, including second homes and investment properties Primary residences only; property must be owner occupied Primary residences only; property must be owner occupied Primary residences only; property must be owner occupied
PMI (private mortgage insurance) No PMI for borrowers who put 20% down; between 0.5% and 1% for all other borrowers PMI comes with an upfront premium of 1.75% of the loan amount; between 0.45% and 1.05% for the remainder No PMI No PMI
Other Notes Borrowers can apply for either a conforming or non-conforming loan Borrowers can also apply for an FHA 203(k) renovation loan Available only to active-duty veterans w/90+ days of service during wartime or those who served 181 days of continuous active duty during peacetime Only low-to-moderate income buyers in rural USDA-approved areas are eligible

4. What is the minimum down payment on conventional mortgage loans in Connecticut?

The standard down payment on conventional loans is 20% of the total loan amount. However, there are several alternative options that require far less. Be aware that any down payment less than 20% may incur additional costs, like private mortgage insurance (PMI).

Loan Type Requirements
5% down with PMI (Conventional 95) One loan at 95% loan-to-value ratio. PMI required.
Conventional 97 3% down. No income limits.
HomeReady® 3% down. Applicants must be at or below the geographical area’s median income, unless home is located in an underserved area.
90% loan One loan with 10% down. PMI required.
Piggyback 80/10/10 10% down, 10% second mortgage, and 80% conventional loan. No PMI required.
Home Possible Advantage 3% down loan with income restrictions. Offered by Freddie Mac home lenders.
Down Payment Gift Applicants may receive any percentage of the down payment as a gift from family or other eligible source.

5. What’s the best credit score for a conventional mortgage?

Your credit score is a number determined by your historical ability to pay your debts, with 300 being the lowest (poorest) score and 850 being the highest. A “good” credit score is considered anything starting in the mid-600s and up. The minimum credit score needed to qualify for a conventional mortgage ranges from 620 to 640, depending on the lender.

6. Are there different types of conventional loans in Connecticut?

Across the U.S., there are two types of conventional loans: conforming loans and non-conforming loans. A conforming loan refers to any conventional mortgage that adheres to the financing limits set by the Federal Housing Finance Agency (FHFA).

Currently, the loan limit for a single-family home in most of Connecticut is $548,250, with the exception of Fairfield County, where the limit is $601,450. For comparison, FHA loans are capped at $356,362 — that’s almost $200,000 less than the Connecticut conventional loan cap!

Non-conforming loans — also called jumbo loans — exceed the FHFA’s conventional mortgage financing limits. Non-conforming loans typically have higher interest rates and higher down payments than conforming loans.

7. Is there financial aid for conventional loan borrowers in Connecticut?

Yes! The Connecticut Housing Finance Authority offers loan programs that can help defray the costs associated with your conventional loan.

HFA Advantage & HFA Preferred: These programs help first time home buyers afford their mortgage insurance, and also offer a secondary loan of up to $3,000 to offset closing costs.

Homebuyer Mortgage Program: This loan program helps low- to moderate-income home buyers afford their payments. Applicants do not need to be first time home buyers to qualify, and may also be eligible for assistance with closing costs.

Down Payment Assistance Program: Included with each of the programs listed above, this is a low-interest loan that acts as a second mortgage. Borrowers are required to put down at least $1,000 in order to qualify for a DAP loan.

8. What documents do I need to qualify for a conventional loan?

Borrowers applying for a conventional mortgage in Connecticut need to provide proof of their income and assets. Use this list to determine if you have everything you need before meeting with your mortgage lender:

❏    Two years’ worth of employment information

❏    A list of assets and liabilities

❏    Government-issued identification

❏    Two years’ worth of W-2s

❏    30 days’ worth of pay stubs

❏    Two to three years’ worth of income tax returns

❏    IRS Form 4506-T (signed and dated)

❏    Two to three months’ worth of bank statements

❏    Two to three months’ worth of investment account statements

❏    Gift letter (if using gift funds)

❏    Credit report

❏    Bankruptcy/discharge papers for any documented bankruptcies

❏    Renting history

❏    Borrowers who are self-employed are required to present additional documentation, including proof of income, a current profit and loss statement and a list of all business debts.

9. What are the pros and cons of a conventional mortgage in Connecticut?

To help you weigh your options when choosing the mortgage that’s right for you, we’ve made a convenient pros and cons chart.

Pros Cons
With a conventional loan, borrowers have a choice of 15, 20, 25 or 30-year mortgage terms. Conventional loans have a higher minimum credit score requirement than government-backed loans.
Conventional mortgages are available as fixed-rate or adjustable rate mortgages. Conventional loans require a higher down payment than government-backed loans.
Borrowers can apply conventional loans to almost any type of property. Conventional mortgages are typically harder to qualify for.
Depending on the type of conventional mortgage, borrowers could pay as little as 3% down. Conventional mortgages come with strict income guidelines.
Conventional loan borrowers are eligible to borrow more than other loan types. Conventional loans have slightly higher rates than government-backed loans.
Borrowers can avoid PMI by putting 20% down, or even cancel their PMI. Borrowers must have reserve money left over in the bank after their down payment.
Conventional mortgage loans don’t have owner occupancy requirements, meaning that they can be attractive to a buyer interested in investment properties. Government-backed loans often require owners to live onsite for a period of time if they purchase a multifamily property.
The conventional loan limit in Connecticut is $548,250 ($601,450 in Fairfield County) The average home value in CT is higher than the national average ($262,600 vs. $248,857).

10. How can Blue Water Mortgage help?

We are a full-service mortgage lender licensed in Connecticut, Massachusetts, New Hampshire, Maine, North Carolina, and Florida. No matter where you’re looking to buy, we offer professional expertise with a hometown feel. Reach out today for guidance in your Connecticut home search.

Roger is an owner and licensed Loan Officer at the Blue Water Mortgage office in Hampton, NH. Roger graduated from the University of New Hampshire Whittemore School of Business and has been in the mortgage industry for over 20 years. Roger has originated over 2500 residential loans and is licensed in New Hampshire, Massachusetts, Maine, Connecticut and Florida.

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