Conventional Home Loans

Conventional home loans are mortgage loans that are not insured or guaranteed by a government agency such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the Department of Agriculture (USDA).  These loans are guaranteed by either Fannie Mae and Freddie Mac, and are offered by private lenders like banks, credit unions, or mortgage companies.

Conventional Home Mortgages can be used to purchase primary, secondary, and investment properties. In this way, conventional loans differ from other types of mortgage loans by allowing for different property uses.  Conventional mortgages have different criteria and are ideal for borrowers who have higher credit scores.  Subsequently, conventional mortgage loans usually require less documentation than VA Home Loans, FHA Home Loans, or USDA Home Loans which makes for easier qualifying for good credit buyers.  The factors considered when applying for Conventional Home Loans are the borrower’s financial history, income, credit score, and down payment compared to the sales price of the home. 

Key aspects of conventional loans:

Down Payment: Typically, conventional loans require a higher down payment compared to government-backed loans. Down payment requirements can vary but often range from 3% to 20% of the home’s purchase price. However, a larger down payment can sometimes lead to better loan terms.

Credit Score: Generally, conventional loans have stricter credit score requirements compared to government-backed loans. A good credit score is usually necessary to qualify for favorable interest rates.

Private Mortgage Insurance (PMI): If the down payment is less than 20% of the home’s value, lenders usually require borrowers to pay for private mortgage insurance. PMI protects the lender in case the borrower defaults on the loan. Once the borrower’s equity in the home reaches 20%, they can request to cancel the PMI.

Loan Limits: Conventional loans have loan limits set by Fannie Mae and Freddie Mac, which are the two government-sponsored enterprises that buy and sell mortgages. These limits dictate the maximum loan amount that can be considered a conventional loan. Loan limits vary by location and are updated annually.

Interest Rates: Interest rates for conventional loans can vary based on factors such as credit score, down payment, loan term, and market conditions. They might be fixed-rate (the interest rate remains constant throughout the loan term) or adjustable-rate (the interest rate can change periodically).

Loan Terms: Conventional loans offer various loan term options, typically ranging from 10 to 30 years.

People often opt for conventional loans when they have good credit, a stable income, and a down payment ready. These loans can offer flexibility in terms of loan amount, property type, and loan terms, but they do have higher qualification criteria compared to some government-backed loan programs.

For more information on a specific area please contact one of our licensed loan officers. Call today to speak to a licensed mortgage officer (800) 804-5181.