Conventional Loans

What are Conventional Loans?

Conventional loans are the most popular type of mortgages in the U.S. They are mortgages that aren’t backed by any government agencies, like the Federal Housing Association or Veteran Affairs. Instead, most of them are issued by private lenders, who then go on to sell the loans to one of these government sponsored entities (GSE).

Conventional loans, however, adhere to Fannie Mae and Freddy Mac guidelines. They come in both, fixed and adjustable rates formats, and their maximum borrowing limit depends on the county or state you live in. As far as terms, they usually sit between 10 and 30 years, depending on the type of rate you go for. Conventional loans tend to require good credit and, depending on your down payment, they might forgo monthly mortgage insurance. If on the other hand, your financial needs require you to pay for mortgage insurance, once you’ve paid the loan below the 80% loan-to-value mark the insurance is dropped.

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Conventional Loans – Notable Requirements

Different types of loans vary wildly on their qualification requirements.

While these might not be all the requirements to qualify for a Conventional loan, they are definitively essential to know up front!

• The average minimum credit score requirement is 640 (620 in some circumstances).
• Your total debt-to-income ratio has to be under 45%.
• A housing debt-to-income ratio under 35%.
• No recent major derogatory credit like bankruptcy, foreclosure, or short sale.
• You need to verify your down payment and get funds from an allowed, documented asset sources.
• Usually, a two-years’ worth of verifiable income (with some exceptions for recent graduates and other major life events).

Conventional Loans & Accessibility – All You Need to Know:

On the outset, it’s important to know that conventional loans tend to come with higher qualification requirements than the government-backed alternatives. That said, they remain some of the most popular options out there given the level of control and versatility they present to borrowers.

When you meet the requirements, you can get your hands on an almost a tailor-made type of mortgage.

From a 5-year adjustable rate mortgage to a 30-year fixed one, and everything in between. The decision is yours, allowing for a lot of freedom for planning around your preferences and needs.

Another huge accessibility benefit for conventional loans is that they are available from pretty much every bank and private lender in the country. Translating into a wide variety of rates and formats to shop around for and choose from.

Being free from the bureaucratic regulation allows private lenders to offer conventional mortgages much more quickly than their governmental counterparts.

Also, higher down payment requirements can be viewed as a plus, when you consider you are saving money in the long run and building your equity faster.

Lastly, conventional loans can be used to finance just about any type of property without having to comply with location or pricing requirements. A huge plus when compared with government-backed mortgage plans.

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Loan Limits for Conventional Mortgages