Conventional Loans
Looking for a flexible loan program? Conventional loans are a popular choice for home buyers because conventional mortgages can offer more flexibility for qualified buyers. Home buyers with a strong credit profile and standard down payment amount often choose a conventional home loan.
What is a Conventional Loan?
Conventional mortgages are not insured or guaranteed by a government agency. This type of home loan typically meets the income and down payment requirements put in place by Freddie Mac and Fannie Mae to conform to the annual loan limits set by the Federal Housing Finance Authority. Home buyers who put down less than 20% are required to pay private mortgage insurance on their conventional loan.
Benefits of Conventional Loans
Since conventional loans aren’t backed by the government, they can offer lower interest rates, a range of down payment options, and a variety of term choices to those who qualify for this type of mortgage. Although a 20% down payment is considered ideal, some conventional loans offer home buyers the option to put down as little as 3%. Keep in mind that if you make a down payment of less than 20%, you’ll pay private mortgage insurance (PMI). One major benefit of conventional loans is that you can cancel your PMI once your principal loan balance is around 20% equity in the property. Other types of home loans (like FHA mortgages) require PMI for the life of the loan.
Who Qualifies for a Conventional Loan?
Home buyers with a strong credit profile and stable income often choose conventional loans. Some of the most important pieces of a buyer’s financial history lenders will consider when deciding if a home buyer is eligible for a conventional loan include debt-to-income ratio, credit score, income, and cash reserves.