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Guide: Conventional Home Loans in Missouri

“What is a conventional loan?” you might ask. Conventional home loans in Missouri are the most common type of mortgage. These loans are not government-backed loans like FHA (Federal Housing Administration). 

Conventional Home Loan: Defined

As previously stated, FHA loans are backed by the government and insured, whereas conventional loans are not. Lenders who fund government-backed loans like FHA are protected should the borrower default on the loan. The mortgage lenders protected by the insurance that comes with government-backed loans.

Since the government does not back conventional loans, they don’t come with this insurance. Therefore, they are considered riskier for mortgage lenders. The requirements to get approved for a conventional loan in Missouri tend to be stricter than FHA loans. For instance, you’ll need a stronger credit score or income to qualify for a conventional loan than an FHA loan.

That said, lenders will work with different borrowers applying for a conventional loan to help them get the best Missouri mortgage rates possible.

How Do Conventional Home Loans Differ From FHA and VA Loans?

As previously stated, FHA loans, backed by the government and insured, whereas conventional loans are not. Lenders who fund government-backed loans like FHA are protected should the borrower default on the loan. The mortgage lenders protected by the insurance that comes with government-backed loans.
Since the government does not back conventional loans, they don’t come with this insurance. Therefore, it’s considered riskier for mortgage lenders. The requirements are tougher for approval on a conventional loan in Missouri than FHA loans. For instance, you’ll need a stronger credit score or income to qualify for a conventional loan than an FHA loan.
That said, lenders will work with different borrowers applying for a conventional loan to help them get the best terms and rates possible.

Why Take Out a Conventional Mortgage in Missouri?

There are several benefits to traditional home loans in Missouri, with mortgage insurance possibly being the biggest. Home buyers in Missouri looking for an FHA loan to purchase a single-family home will have to pay mortgage insurance. This insurance protects the lender in case the borrower defaults on the mortgage.

FHA requires a one-time upfront mortgage insurance premium of 1.75% of the loan amount. Additionally, most FHA home buyers have a recurring monthly mortgage insurance premium of .85%.

Conventional loans in Missouri may also need private mortgage insurance (PMI), subject to the percentage down payment. Specifically, you need at least 20% of the purchase price for a down payment to avoid paying PMI.

So, while FHA loans require mortgage insurance, purchasers who can afford a 20% down payment or more on a conventional mortgage may be able to avoid having to pay mortgage insurance. The mortgage insurance premium gets cheaper for every additional 5% down payment.

Conventional home loans are popular in Missouri and the rest of the country because many qualified borrowers desire to avoid paying additional fees in the form of mortgage insurance.

Loan Limits in Missouri

Missouri conventional mortgages are subject to maximum “loan limits” based on the county the property is located, these restrictions set by the FHFA. Lenders can sell mortgages within these loan limits to Fannie Mae and Freddie Mac, which work within the secondary mortgage market.

“Conforming” loans are conventional loans that adhere to specified borrowing limits. Jumbo loans are loans that exceed these lending limits.

Here are the 2022 conforming loan limits for all Missouri counties.

Buyers of homes in Missouri may borrow more than these loan limitations. However, because of the higher risk involved, the income and down payment will need to be sufficient to sustain these higher loan amounts. The mortgage loan would be a non-conforming or jumbo loan. 

In recap, Missouri conventional home loans can be conforming or jumbo loans. The loan amount borrowed will dictate the type of loan, respective to the county and home’s location.

What do You need to Qualify For a Conventional Home Loan in Missouri?

Before approving a mortgage, lenders must evaluate each application. Below are some of the guidelines for conventional loans.

Good credit score. The minimum credit score for conventional loans is 620. Ideally, a higher credit score is even better, as this will help increase your odds of approval. 

Minimum 3% down payment. A conventional mortgage allows for a down payment as low as 3%. That said, a larger down payment is always preferable. It will increase your chances of getting a better mortgage interest rate and lower your loan-to-value (LTV) ratio and loan amount.

Strong income. Your income will need sufficient support for the monthly payment and your other monthly obligations in relation to your income. Lenders will calculate your debt-to-income (DTI) ratio, which determines your qualification.

The maximum DTI permitted for conventional loans is 50%. However, if you want the best chance of being accepted, keep your DTI below 45%.

Are You Ready to Apply For a Conventional Home Loan in Missouri?

Metropolitan Mortgage has been in business since 1997, and we have assisted more than 10,000 families in financing their homes in the Midwest. If you are looking for a direct lender in Overland Park and the greater Kansas City metropolitan area, we can help. Metropolitan Mortgage offers mortgage lending in the states of Kansas and Missouri.

Rick Woodruff
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