Conventional Mortgage Loans in Maine: 10 Frequently Asked Questions

A conventional mortgage is a private-sector loan that isn’t backed by the federal government and follows the lending guidelines set by Congress. Most conventional loans are furnished by the lending entities Fannie Mae and Freddie Mac.

You’ve probably heard of the most common non-conventional, government-insured home loans. We won’t be discussing them in detail in this post, but for reference, they include:

• FHA (Federal Housing Authority)
• VA (Department of Veterans Affairs)
• USDA (United States Department of Agriculture) Rural Development

Conventional mortgages are the most common type of loan and account for 60% of all mortgage applications. Any conventional mortgage that adheres to the financing limits set by the Federal Housing Financing Authority (FHFA) is considered a conforming loan.

Non-conforming loans — also known as jumbo loans — exceed the FHFA’s conventional mortgage financing limits. Non-conforming loans usually carry higher interest rates than conforming loans, as well as higher down payments. This can be a good option for home buyers who have their hearts set on a larger home and have the means to pay a little more up front.

Yes! The table below lists all the conventional loan options available in Maine.

There are also some Maine-specific programs that offer assistance to home buyers with conventional mortgages.

First Home Loan Program: This program from MaineHousing helps first time home buyers by providing low fixed interest rates, small or no down payments, and will even roll the projected cost of necessary home repairs into the loan amount.

Advantage: This is MaineHousing’s down payment cash assistance program. They provide up to $3,500 to borrowers using a First Home, Salute ME (for veterans) or Mobile Home Self-Insured mortgage program.

Indian Housing Mortgage Insurance Program: MaineHousing provides mortgage insurance for properties on tribal lands, from which mortgage lenders are typically restricted. Through this program, members of the Passamaquoddy and Penobscot nations looking to buy or build on tribal land can be approved for mortgages.

PMI stands for private mortgage insurance, which is paid by the loan borrower. This policy protects the lender if a loan applicant is providing less than 20% for their down payment. PMI generally costs between 0.5% and 1% of the entire loan annually; rates vary depending on the borrower’s credit rating.

If you’re wondering which conventional mortgage loan in Maine is right for you, we can help. Click here to schedule a call.

Your credit score is a number determined by your historical ability to pay your debts; 300 is the lowest (poorest) score, and 850 is the highest. Mortgage lenders use this number to determine an applicant’s eligibility to take out a loan. A “good” credit score is considered anything starting in the mid-600s and up. The lowest credit score accepted for conventional mortgage approval in Maine is 620, although this depends on the lender.

A loan limit is a cap placed on loan amounts in a specific area or nationwide, as determined by the Federal Housing Financing Authority. This is usually determined by the property values in a certain county; for example, state counties with higher property values will place higher caps on their loan amounts to accommodate higher home prices.

Government-backed loans generally have lower loan limits than a conventional loan. The national loan cap for an FHA loan, for example, is $356,362. As of early 2021, the maximum conventional conforming loan limit for a single-family home in Maine was $510,400.

Debt-to-income ratio (DTI) compares how much you earn to how much you owe in rent, mortgage payments, student loans and other debts. The standard maximum DTI most conventional mortgage lenders will accept is 43%.

The lowest possible conventional down payment option available in Maine is 0%, as offered by the First Home Loan Program (see above). However, there are eligibility conditions applicants must meet to qualify, and low down payments often come with added costs, such as PMI. Besides this, Fannie Mae and Freddie Mac both offer 3% down payment options.

When you meet with your loan officer to discuss your conventional loan options in Maine, you’ll likely cover the following:

• Your credit score: The minimum credit score to qualify for a conventional mortgage ranges from 620 to 640, depending on the lender.
• Necessary documentation: Borrowers applying for a conventional mortgage will need to provide documentation detailing their income and assets, among other things. See the next section for a complete list.
• Your income & assets: Lenders will use the documents you provide (specifically bank and investment account statements) to verify that you have sufficient means to cover both the down payment and associated closing costs.
• Minimum down payments available: Typically, conventional mortgage loans require a higher down payment than government-backed loans. Most conventional lenders require at least 5% down, and up to 20%. However, as noted above, there are a few conventional loan options in Maine that allow for 3% down. Be aware that any down payment less than 20% will incur PMI.
• Property type eligibility: A conventional mortgage can be used for almost any type of property, including warrantable condos (condos that meet conventional mortgage requirements), modular homes, manufactured homes and multifamily residences with one to four units. Unlike FHA or VA loans, conventional loans do not have any owner occupancy requirements, which makes them an excellent option for second homes or investment properties.
• Sufficient debt-to-income ratio: Most conventional mortgage lenders will allow for a maximum DTI of 43%.
• AMI: AMI stands for area median income. Most lenders will only approve applicants who make 80% or less of their desired area’s average household income. For instance, the AMI in the Portland area was $90,100 in 2018 — therefore, most conventional loan borrowers could be approved if they made $72,080 per household or less.
• Private mortgage insurance: Any borrower who applies for a conventional mortgage and pays less than 20% down on their home is required to pay PMI. PMI for a conventional loan generally costs between 0.5% and 1% of the entire loan on an annual basis, though this varies depending on the borrower’s credit rating.

As mentioned above, you’ll need to provide your lender with documents that verify your income, ability to pay debts and regular spending habits. This checklist will help you collect and prepare these documents:

❏ 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.

If you’re on the fence about whether a conventional mortgage is right for you, this table will help you compare government- and privately insured loans.

What are the next steps?

If you’re prepared to begin your conventional loan application process, or have a few more questions of your own, the Blue Water Mortgage team can help. We leverage our combined 150 years of lending experience to help home buyers looking in New Hampshire, Maine, Massachusetts, Connecticut, Vermont, Rhode Island, Florida, North Carolina, Colorado, Texas, Georgia, and South Carolina. Contact us today to start a conversation.