Conventional Loans Benefits
High Loan Limits
Competitive interest rates
Flexibility
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Conventional loans are originated and serviced by private mortgage lenders like banks, credit unions, and other financial institutions, many of which also offer government-insured mortgage loans. In general, conventional loans don’t have some of the same perks as government-insured loans, such as low credit score requirements and no down payment or mortgage insurance.
It’s possible to get approved for a conforming conventional loan with a credit score as low as 620, although some lenders may look for a score of 660 or better. Even if you can qualify for a conventional loan, though, your interest rate will largely depend on your credit score and overall credit history. The better your credit is, the less you’ll pay in interest over the life of the loan.
You can find conventional mortgage loans with a down payment requirement as low as 3%, and some lenders have special programs that offer up to 100% financing. However, if you don’t put down 20% or more, the lender typically requires you to pay private mortgage insurance, which can cost between 0.3% and 1.5% of your loan amount annually.
Conventional loans typically run for 30 years, but it’s possible to qualify for a 15 or 20-year conventional mortgage loan.
Benefits of Conventional Loans
Competitive interest rates
Because your interest rate on a conventional loan is tied to your creditworthiness, among other factors, a high credit score can help you qualify for a low interest rate. And while a low down payment can result in you paying private mortgage insurance, you can request to have the insurance requirement removed once your loan-to-value ratio reaches 80%.
Flexibility
Private mortgage lenders have more flexibility with conventional loans than they do with government-insured loans, primarily because they don’t need to follow the guidelines set by those government agencies. As a result, you may have an easier time finding a conventional loan with flexible down payment options and term lengths, not to mention opportunities to get a loan if your credit doesn’t meet the standards for a government-insured or conforming loan.
High Loan Limits
While conforming loans do have limits, you can go even higher with jumbo conventional loans if you need to. You may not get that kind of flexibility with government-insured loans.
Limits for Conventional Loans
Property Type |
Maximum Loan Limits |
|---|---|
| Duplex | $828,700 |
| Triplex | $1,001,650 |
| Fourplex | $1,244,850 |
If you’re shopping for a mortgage you have probably heard about conventional loans. But what exactly is a conventional loan and how do you know if it’s the right type of mortgage for you? In this article, we’re going to break down conventional loans and go over the pros and cons.
What is a Conventional Loan?
A conventional loan is a mortgage that is not backed by any Government agency such as the Federal Housing Administration (FHA) or Veterans Administration (VA). Conventional loans meet the lending requirements of Fannie Mae and Freddie Mac, the two largest buyers of mortgage loans in the US. Most conventional mortgages are issued by private lenders who then sell the loan to one of these Government Sponsored Entities (GSE’s).
Fixed or adjustable rates for primary, second homes, and investment properties.
There is a wide range of down-payment options.
Conventional Mortgage Requirements
Credit
The minimum credit score requirement is typically between 620-640 depending on the lender.
Occupancy
Conventional loans can be used to finance a primary residence, a second home, a vacation property, or a rental property. This is in contrast to government-backed loan programs which can only be used to finance a primary residence.
Property Type
Single-family homes, duplexes, 2-4 unit properties, condominiums, and townhouses are eligible.
Income
Income will be verified by reviewing recent paycheck stubs, tax returns, and W-2s. Debt-to-Income Ratio typically must not exceed 43%. But the final Debt to Income ratio is determined by an Automated Underwriting System that is driven by Fannie Mae or Freddie Mac or other lending entities.
Assets
Bank and investment statements will be verified to ensure the borrower has sufficient assets to close. These funds must be able to cover a down payment plus associated closing costs.
Mortgage Insurance
No mortgage insurance is needed with at least a 20% down payment. Conventional loans are the most popular loan program that is utilized by most borrowers. But they do require documentation of income, and assets and have a certain credit standard. If you don’t fit in this box don’t worry, there are so many other loan options out there. Consider Non-Prime. Rates and fees can be higher than conventional loans, but missing the boat on buying a home or achieving your other financial goals might end up being costlier. Call or text us to discuss.