Conventional Mortgage

In a conventional mortgage, the amount that you borrow cannot exceed 80% of the lowest value of either the appraised value of the property or the purchase price. A conventional mortgage requires you to put 20% down against the purchase price.

Primary Factors Lenders Look For

Lenders look for four things when approving a borrower for a conventional mortgage.

1. A person with a stable income

While lenders tend to feel more comfortable with employees who are working for a business, if you are a self-employed individual who can prove your ability to earn a steady income, lenders will consider you for a conventional mortgage as long as your earnings match the lender’s requirements for the amount you will need to pay each month.

2. A person with a solid credit history

This is one of the most important factors in finding a mortgage with the best rate possible. When your credit score is above 680, you get more flexibilities in underwriting.

3. A property with the right value

The higher the appraised value of the property in contrast to the amount you are asking to borrow, the better your chances of securing a conventional mortgage. If the appraisal comes in lower than the amount you want to borrow, the loan won’t be approved.

4. A down payment of the right amount

Lenders are looking for a ratio of loan to value of nothing more than 80%. This means you must be able to place at least 20% down. More is even better. Lenders see someone who has invested a sizeable amount of his or her own money as a better risk.

Banks prefer conventional mortgages typically. This is because a conventional mortgage places the lender in a more secure position if the borrower ever defaults on the mortgage. This is especially true if the market is declining in value.

Lenders will consider high ratio mortgages as long as you are able to pay for CMHC /Genworth/CG Mortgage Insurance. Even so, whenever you can, your best option is to save money toward a down payment, unless housing prices are rising rapidly. In a market where values are dropping, the conventional mortgage is a better choice for most home buyers.