For this part of the series, we will be discussing what a first time home buyer can expect with applying for a loan as Conventional. Buying a home through a Conventional loan program has several differences from the USDA loan program, but can closer related to the FHA program. The Conventional Loan program is the industry-normalized loan program that most home-owners participate in. This program doesn’t target any potential first time borrower over a repeat borrower, unlike the FHA Program. If you’d like to learn more about the Conventional program in depth, including reasons why people generally pick this program over others, please check out the Conventional Loan Program update!
Similar to the USDA and FHA First Time Home Buyer Guide, we will be discussing Assets and Income first. The Conventional program is a bit more lenient in terms of requirements for asset documentation, such as bank statements. The first time home buyer can rest assured that household asset documentation is not required for this program. While large deposits do need to be sourced for this program, the large deposit “threshold” will be much more forgiving than the USDA program.
Non-payroll deposits of 1% or more of the purchase price will need to be sourced for Conventional programs. The underwriter needs to make sure that the first time home buyer’s money is coming from a credible, legal source, and will need to be documented. Non-purchasing spouse can submit their asset documentation only if they wish to. This includes others in the home that are over eighteen years of age. The only difference is if there are transfers going into the first time borrower’s account from another person’s bank account. If this is the case, that Bank Statement will need to be provided so the underwriter can source the transfers. Joint accounts will need to be submitted as long as the first time borrower is listed as an account holder as well. Other than that, submitting of Bank Statements is pretty straight forward.
Just like for the USDA program, the underwriter will require 30 days of the most recent pay stubs for submission. As mentioned before, pay stubs are used for determining the baseline for income, and can also see if there any deductions for other things, such as child or spousal support. In order to get an accurate reading on debt-to-income, if there are any other additional deductions besides taxes, social security, etc., then there will need to documentation provided to the underwriter to show how long the additional deductions will be affecting the income. If the first time borrower pays or receives child support, a child support order is needed, and if a first time borrower pays or receives spousal support, a divorce decree and separation agreement will be required. Both of these items are required because the first time borrower will need to have debt-to-income recalculated if these items weren’t previously shown.
For the next section, we will dive into a bit more for the Conventional loan program with Part Two of the series!