A conventional loan is a type of mortgage that is not secured by a government agency and instead, offered through private lenders such as Freddie Mac or Fannie Mae. They offer lower interest rates and lower monthly payments. Conventional loans are one of the most popular loans for homeowners.
Advantages of a Conventional Loan:
|More options (10 year fixed rate, 15 year fix rate, 30 year fixed rate, etc.)Minimum down payment of 3%Can be used on all property typesNo maximum loan limitFaster underwriting timeLess paperwork|
The maximum loan amount is the same for every state.
Conventional Loan Programs:
Conventional Purchase Loan
The qualifying criteria of a conventional loan include higher credit scores and ratios. Typical credit scores should be slightly higher than other government-backed programs such as VA and FHA. The recommended maximum debt to income is 43% but, in some cases, can be stretched to 50%. You will have primary mortgage insurance (PMI) if you put less than 20% down for your down payment. However, PMI can be removed when you reach an LTV (loan to value) of less than 78%. You can also pay more each month on your principle to reduce the length of the mortgage as well as the interest paid.
Fixed Rate Refinance
You can refinance anytime under a conventional loan. This is very different from the other programs such as VA AND FHA which require 6 payments before you can refinance. In fact, many FHA borrowers transition from FHA loans to conventional to eliminate primary mortgage insurance (PMI) and get a better rate. In addition, there is an appraisal waiver program that allows the borrower to get a loan without an appraisal.