What is a conventional loan?
A conventional mortgage is a loan that is not protected or warranted by the government, unlike an FHA, USDA, and VA. Usually, private lenders like mortgage companies and banks offer these loans, and they comply with Fannie Mae and Freddie Mac’s guidelines. Due to the absence of government backing, conventional loans may have more stringent prerequisites, requiring borrowers to have superior credit ratings and put down more significant deposits than other forms of government-backed loans.
Conventional Loan Requirements
*Max conforming loan limits can increase from county to county. You can find the complete list of county conforming limits here.
In most cases, a conventional loan is a conforming loan, meaning the loan conforms to the standards set forth by the Federal Housing Finance Agency (FHFA). Adhering to these standards means these loans are deemed “less risky” by the investors who eventually buy them. This is relevant to you as the borrower because conventional loans are usually the cheapest real estate loans available.
Minimum Qualifications:
- Minimum FICO score of 620
- Minimum down payment:
- First-time home buyer is 3%
- Primary Residence (non-first-time homebuyer) is 5%
- Second/Vacation Home is 10%
- Investment Property is 20%
Pros & Cons of Conventional Loan
- Typically have lower interest rates
- Offer more flexible terms and payment options
Cons:
- Stricter loan requirements making it more difficult to qualify
- higher credit score minimums
- lower debt-to-income thresholds
- May require Private Mortgage Insurance for loans with less than 20% down.
