Conventional Loans
Mortgage loans that are ideal for individuals with higher credit scores and the ability to make a down payment.
In a Nutshell
What are Conventional Loans?
A conventional loan is a type of home loan offered by private lenders like banks, credit unions, and mortgage companies. Unlike government-backed loans such as FHA, VA, or USDA loans, conventional loans aren’t insured by the government. However, they still follow guidelines set by the Federal Housing Finance Agency (FHFA), including loan size limits that are updated annually.These loans are a popular choice for buyers with good credit and steady income who are looking for flexible loan terms and competitive interest rates.
What to Know Going In
Loan Requirements
A conventional mortgage typically requires borrowers to have a strong credit score, usually at least 620 or higher, to qualify for the best rates and terms. A down payment of at least 3% to 5% is generally needed, with larger down payments often resulting in better interest rates and no private mortgage insurance (PMI) if the down payment reaches 20% or more. Lenders also look at the borrower’s debt-to-income ratio, employment history, and overall financial stability to ensure they can handle the loan payments. Additionally, applicants may need to provide proof of income, assets, and creditworthiness to meet the lender’s standards for a conventional loan.
The Upside
Benefits of Conventional Loans
Conventional loans typically offer greater flexibility. For those with higher credit scores, more competitive terms are typically available, with scores of 740+ usually receiving the biggest upside. Repaying a conventional loan typically happens over a 30-year period, but shorter terms options like a 15- and 20- year loans are also available.
These factors can greatly reduce the overall cost of the loan.
How to Determine if a Conventional Loan is Right For You
Meeting with a mortgage advisor early in the process of looking for a home is key to finding the best loan option for your situation. We’re here to help determine the type of loan that’s right for you.