The Ultimate Guide to Conventional Loans in El Paso, TX, and New Mexico for First-Time Buyers

A conventional loan is a standard, traditional mortgage issued by a private lender like a bank, credit union, or mortgage company. It is not backed or insured by the federal government the way a VA loan, FHA loan, or USDA loan is. Conventional loans are the most common and popular option for financing a home, secondary residence, or investment property. Here is your ultimate guide to conventional loans in El Paso, TX, and New Mexico if you’re a first-time home buyer.

Exploring Different Types of Conventional Home Loans

There are a number of different conventional home loan products available to first-time home buyers. The most common are:

• Conventional HomeReady or Home Possible – These are Fannie Mae and Freddie Mac programs that allow a lower down payment for first-time home buyers, and have more flexible income requirements for low-to-moderate-income buyers.
• Conventional Investment Property – This is ideal for people who are purchasing rental properties, and typically requires a 20% down payment but allows for future rental income to be used to qualify for the loan.
• Second Home or Vacation Mortgage – This is used to purchase a second home or vacation home, but has strict occupancy verification rules and requires a 10% minimum down payment.
• Non-Conforming or Jumbo Loan – This is required when a loan amount exceeds federal limits. It requires a 10-20% down payment and strict lender auditing.

Understanding Conventional Loan Requirements

To qualify as a first-time buyer, you must be able to prove that you have not owned a primary residential property in the past three consecutive years. Before applying for a first-time home buyer loan, you should familiarize yourself with the lender’s eligibility requirements:

• Area Median Income Caps – To qualify for a premier low-down-payment program, your total household income must be at or below 80% of the county’s Area Median Income.
• Credit – Most lenders require a credit score of 620 or higher; however, FHA loans may qualify buyers with 500-580 credit scores. 
• Income and Employment – You must be able to provide proof to underwriters that you have stable and predictable income. 
• Debt-to-Income Ratio – Your DTI ratio typically must fall between 36-45%, with a 50% maximum ceiling for some borrowers.
• Down Payment – You should be able to prove that you can make a 3% down payment as a first-time home buyer or low-to-moderate income borrower.

Benefits of First-Time Home Buyer Loans

A first-time home buyer loan allows you to take advantage of lower interest rates, lower down payments, reduced credit requirements, and other homebuyer assistance programs not available to traditional borrowers. Some of the biggest benefits are:

• Reduced down payment of 3% for a conventional HomeReady loan and 3.5% for an FHA loan, with VA loans and USDA loans often requiring no down payment at all
• Reduced closing costs for VA loans and USDA loans
• Qualification even with credit scores as low as 500-580
• Access to down payment assistance programs via state and city grants
• More flexible income verification, allowing the use of boarder income, rental history, and non-occupant co-signers
• Discounted Private Mortgage Insurance (PMI) premiums for low-to-moderate-income buyers, and no PMI required for VA loans
• More lenient property inspections
• Ability to bypass more strict requirements like provable post-closing liquid asset reserves
• Ability to claim Mortgage Credit Certificates for a portion of the mortgage interest you pay each year

What to Expect: the Step-by-Step Conventional Loan Process

The process of applying for a first-time home buyer loan can take 30 to 90 days. The general process includes:

• Pre-approval via an audit of your credit, income, and DTI ratio to lock in your maximum financing power
• Hiring a real estate agent to tour homes, negotiate prices, and submit a formal purchase offer
• Applying for a loan for the specific property you want to buy
• Scheduling a home inspection with a certified independent home inspector
• Negotiating with the seller regarding the findings of the home inspection report and any necessary repairs
• Scheduling an independent home appraisal through your mortgage lender
• Undergoing the formal underwriting process
• Completing a final walkthrough to confirm any required repairs were made
• Review final closing disclosure documents, wire the down payment, and sign all official documents, including loan notes and deed

Avoiding Common First-Time Homebuyer Mortgage Mistakes

If you aren’t properly prepared, you could fall victim to common mistakes made by first-time home buyers. Read through these potential problems to protect yourself:

• Opening new lines of credit right before or during the loan process
• Changing jobs or transitioning from one type of position to another during underwriting
• Forgetting to budget 2-5% for closing costs
• Moving money from one bank account to another right before you apply
• Maxing out your pre-approval limits
• Depositing cash or gifts into your account without proper sourcing or documentation
• Neglecting to schedule a pre-purchase home inspection

Get Personalized Conventional Loan Estimates

Rocky Mountain Mortgage Co. is a locally-owned and operated mortgage banking company with more than 40 years of expertise in the industry. We offer a streamlined process for first-time home buyers who are interested in securing conventional financing for residential properties. Because we use in-house underwriters, we can make the application and underwriting process less stressful. We offer conventional and specialized home loan products, including FHA loans, VA loans, USDA loans, and traditional conforming loans for first-time home buyers. Our 620 credit score benchmark and flexible qualifications, as well as our access to direct down payment assistance programs, make it easier for low-to-moderate-income borrowers to secure financing. Call us now or contact us online to get a personalized loan estimate in El Paso, TX, or New Mexico.