What will a lender require? (Conventional loan)

11 Replies

Forgive this completely noob question, but my husband and I will likely try to finance our first property the uncreative way with a conventional loan.

Does anyone know what a lender is likely to require regarding down payment, closing costs, reserve funds, credit score, DTI, etc?

Thanks in advance for any insight you can give!

I have always had to use 25% for a conventional investment loan.  I see people talking about 20% a lot though.

25% down?  

I've been budgeting 20% down, 5% for closing costs.  I'm wondering about reserves - how many months of our personal mortgage (and/or the new loan payment) should our reserves be able to cover?  

I would guess you can find a bank that will do 20%, I have never looked as I get really good rates with 25% from my banks.  I would guess rates will be higher from a bank that accepts 20% but can't say for certain.  I can't offer any ideas on reserve as it has never been an issue.  I'm sure others will have more thoughts on the subject.

Sam & Heather Jones 

You can get away with 15% down on an investment property depending on your income and credit score. Minimum middle score for conventional is 620, DTI up to 50% (again depending on FICO), 6 months reserves worth of the mortgage payment, taxes and insurance for all property's you own. Closing costs vary depending on state, credit score, and loan size but on a 30 year don't be surprised to pay 1 point if financing 85%. Also, in many cases you can use projected rental income on the property to get approved.

When you say 6 months reserves for all properties - does that include the one you intend to buy?

Sam Jones
It will vary between banks, but in the last conversation I had I was told six months for any non owner occupied property (rental) and two months for your primary residence. This was specifically for financing a duplex which I was planning to occupy one of the units, and turn my current SFR that I'm currently living in into a rental.

Sam & Heather Jones 

Yes it includes the property your buying. But 401k's, IRA's, TSP's, cash value life insurance, etc all work. Depending on the type of account the lender may only use 65% of the value to qualify (normally 401k's, TSP's)

0-5% down if you intend to occupy for a year, 2 months of paystubs, 6 months of reserves for all properties, high 500 credit score in some cases and not sure about DTI

I think most of the posts before me have answered your question adequately but I wanted to add that homepath properties can be had by investors for only 10% down.  A good option for new investors.

Here are the Fannie Mae guidelines which is what conventional lenders abide by (I've actually had to refer mortgage folks to this in the past because many of them don't even know).  This matrix will show you exactly what you need based on credit score, down payment, type of property, etc.

Fannie Mae Matrix

Thank you everyone for your replies...  

@Michael Siekerka - thank you for that link!!!

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