Explore Your Loan Options with Dana Peterson

The most popular mortgage option in America, conventional loans offer flexibility, competitive rates, and the ability to remove private mortgage insurance (PMI) once you reach 20% equity.

Ideal Borrower Profile

Conventional loans work best for borrowers with solid credit (typically 620+, though 680+ gets you the best pricing), stable employment history (2+ years in the same field), and verifiable income through W-2s or tax returns. You'll need a down payment of at least 3% for primary residences, though 5-20% is more common. Investment properties require 15-25% down depending on the scenario.

Down Payment Scenarios & PMI

Here's how down payment affects your loan:

• 3% down: Available for first-time buyers and limited-income borrowers through programs like HomeReady and Home Possible. PMI required.
• 5-10% down: Standard for most buyers. PMI required but can be removed once you reach 20% equity through payments or appreciation.
• 15-19% down: Lower PMI costs, better rates, and you're close to the 20% threshold.
• 20%+ down: No PMI, best rates, and maximum negotiating power with sellers.

PMI typically costs 0.3% to 1.5% of the loan amount annually, depending on your credit score and down payment. Once you reach 20% equity, you can request PMI removal—no refinance needed.

Conforming vs. High-Balance

Conventional loans come in two flavors:

• Conforming: Loan amounts up to $806,500 (2025 limit for most counties). These have the best rates because they can be sold to Fannie Mae or Freddie Mac.
• High-Balance: Loan amounts above conforming limits but below jumbo thresholds (varies by county—up to $1.2M+ in high-cost areas like California). Slightly higher rates than conforming but still competitive.

Rate Drivers & Pricing

Your interest rate is determined by several factors:

• Credit score (740+ gets best pricing; 620-679 pays a premium)
• Loan-to-value ratio (lower LTV = better rate)
• Property type (single-family gets best rates; condos and 2-4 units pay slightly more)
• Occupancy (primary residence gets best rates; investment properties pay 0.5-1% more)
• Debt-to-income ratio (below 43% is ideal; up to 50% is possible with strong compensating factors)

Appraisal Expectations

All conventional loans require an appraisal to confirm the property's value supports the loan amount. Appraisals typically take 7-14 days and cost $400-$700 depending on property type and location. If the appraisal comes in low, you can negotiate with the seller, bring additional cash to close, or (in some cases) challenge the appraisal with comparable sales data.

Closing Cost Overview

Expect to pay 2-5% of the loan amount in closing costs, including:

• Origination/underwriting fees: $1,000-$2,500
• Appraisal: $400-$700
• Title insurance and escrow: $1,500-$3,000
• Prepaid property taxes and insurance: varies by location
• Recording fees and transfer taxes: varies by county

You can often negotiate seller credits (up to 3-9% of the purchase price depending on down payment) to cover some or all of these costs.

Common Questions

One of the best mortgage benefits available to veterans, active-duty service members, and eligible surviving spouses. VA loans offer zero down payment, no PMI, and competitive rates.

Eligibility Basics

To qualify for a VA loan, you need a Certificate of Eligibility (COE) from the Department of Veterans Affairs. Eligibility is based on:

• Active-duty service members with 90+ days of service during wartime or 181+ days during peacetime
• Veterans with honorable discharge and minimum service requirements (typically 90 days wartime or 181 days peacetime)
• National Guard and Reserve members with 6+ years of service
• Surviving spouses of service members who died in service or from service-connected disabilities

We can help you obtain your COE quickly—often within 24-48 hours using the VA's online system.

Zero Down Potential & Funding Fee

VA loans allow 100% financing with no down payment required, making them ideal for buyers who want to preserve cash for moving costs, furniture, or emergency reserves. However, there is a one-time VA funding fee:

• First-time use: 2.15% of the loan amount (can be rolled into the loan)
• Subsequent use: 3.3% of the loan amount
• With 5% down: 1.5% funding fee
• With 10%+ down: 1.25% funding fee

Exemptions: Veterans receiving VA disability compensation and surviving spouses are exempt from the funding fee.

Residual Income Tests

Unlike conventional and FHA loans that focus primarily on debt-to-income ratios, VA loans also require residual income—the amount of money left over each month after paying all debts and estimated living expenses. This ensures you have enough cushion to cover unexpected costs. Residual income requirements vary by family size and region.

Jumbo VA Loans

VA loans have no maximum loan amount, but your entitlement (the amount the VA guarantees) may limit how much you can borrow without a down payment. For 2025, full entitlement covers loans up to $806,500 in most counties (higher in expensive areas). If you're buying above your entitlement, you'll need to put down 25% of the difference.

Seller Credits & Rate Buydowns

VA loans allow sellers to contribute up to 4% of the purchase price toward your closing costs—one of the most generous allowances in the industry. This can cover your entire closing cost burden, making VA loans truly zero-out-of-pocket in many cases. You can also use seller credits to buy down your interest rate with discount points.

If you're self-employed and write off significant business expenses, your tax returns may not reflect your true income. Bank statement loans use your actual deposits to qualify you.

Alternative Documentation

Traditional mortgages require W-2s and tax returns to verify income. But if you're a business owner, freelancer, contractor, or gig worker, your taxable income (after deductions) may be much lower than your actual cash flow. Bank statement loans solve this problem by analyzing your business and personal bank account deposits over 12 or 24 months.

How Bank Statement Averaging Works

Lenders review your bank statements and calculate your average monthly deposits. They typically apply an expense ratio (e.g., 50% for sole proprietors, 25% for corporations) to account for business costs, then use the net figure as your qualifying income. For example:

• Average monthly deposits: $15,000
• Expense ratio (50%): $7,500
• Qualifying income: $7,500/month or $90,000/year

Eligible Entity Types

Bank statement loans work for:

• Sole proprietors and independent contractors
• LLCs, S-corps, and C-corps
• Partnerships
• Freelancers and gig economy workers (Uber, DoorDash, Upwork, etc.)
• Real estate agents and commission-based professionals

Reserves & Risk-Based Pricing

Because bank statement loans are considered non-QM (non-qualified mortgage), lenders typically require:

• Higher credit scores (usually 680+, though 640 is possible)
• Larger down payments (typically 10-20%)
• Cash reserves (3-12 months of mortgage payments in the bank)
• Slightly higher interest rates (typically 0.5-1.5% above conventional rates)

How to Prep Your Statements

To maximize your qualifying income:

• Use business accounts for business income (don't mix personal and business deposits)
• Avoid large, irregular deposits that can't be explained (lenders may exclude them)
• Document any non-income deposits (loans, transfers between accounts, gifts) so they're not counted as income
• Provide 12-24 months of statements (24 months often gets better pricing)

Realistic Expectations

Bank statement loans are more expensive than traditional mortgages, but they open doors for self-employed borrowers who can't qualify conventionally. If you're planning to stay in the home long-term and your income is stable, you can often refinance to a conventional loan after 2 years of tax returns showing higher income.

For homeowners 62 and older, reverse mortgages (HECMs) convert home equity into cash without monthly mortgage payments. You retain ownership and can stay in the home as long as you live there.

HECM Basics

A Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage, insured by the Federal Housing Administration (FHA). Unlike a traditional mortgage where you make payments to the lender, a reverse mortgage pays you. The loan balance grows over time as interest accrues, and is repaid when you sell the home, move out permanently, or pass away.

Age & Occupancy Requirements

• You must be 62+ years old (all borrowers on title)
• The home must be your primary residence
• You must own the home outright or have significant equity (typically 50%+)
• You must meet with a HUD-approved counselor before applying (required by law)

Payout Options

You can receive reverse mortgage proceeds in several ways:

• Lump sum: One-time payment at closing (fixed rate only)
• Line of credit: Draw funds as needed; unused credit grows over time (adjustable rate)
• Monthly payments (tenure): Fixed monthly payments for as long as you live in the home
• Term payments: Fixed monthly payments for a set number of years
• Combination: Mix of lump sum, line of credit, and monthly payments

Non-Recourse Feature

One of the most important protections of a HECM is that it's a non-recourse loan. This means you (or your heirs) will never owe more than the home's value when the loan is repaid. If the loan balance exceeds the home's value, FHA insurance covers the difference—your heirs are not responsible for the shortfall.

Counseling Requirement

Before you can apply for a reverse mortgage, you must complete a counseling session with a HUD-approved counselor. This session (typically 60-90 minutes, can be done by phone) ensures you understand how reverse mortgages work, the costs involved, and alternative options. We can provide a list of approved counselors in your area.

Heirs' Options

When the last borrower passes away or moves out permanently, heirs have several options:

• Repay the loan and keep the home: Pay off the reverse mortgage balance (or 95% of appraised value, whichever is less) and retain ownership
• Sell the home: Sell the property, repay the loan, and keep any remaining equity
• Walk away: If the loan balance exceeds the home's value, heirs can walk away with no financial obligation (non-recourse protection)

Fees & Timelines

Reverse mortgages have higher upfront costs than traditional mortgages:

• Origination fee: Up to $6,000 (capped by FHA)
• FHA mortgage insurance premium: 2% of home value upfront + 0.5% annually
• Appraisal, title, and closing costs: $3,000-$5,000

These costs can be rolled into the loan, so you don't pay them out of pocket. The process typically takes 30-45 days from application to closing.

When a Reverse Mortgage Isn't a Fit

Reverse mortgages aren't right for everyone. Consider alternatives if:

• You plan to move in the next few years (high upfront costs may not be worth it)
• You want to leave the home to heirs with maximum equity
• You can't afford property taxes, insurance, and maintenance (required to keep the loan in good standing)
• You have other lower-cost options like downsizing, a HELOC, or family support