A conventional loan is a type of mortgage that isn’t backed by a government agency such as the Federal Housing Administration (FHA), United States Department of Agriculture (USDA) or the Department of Veterans Affairs (VA). Fannie Mae and Freddie Mac usually set down payment and income requirements for conventional mortgages and Federal Housing Finance Administration (FHFA) usually sets the loan limits for conventional mortgages.
Conventional Mortgages are generally more difficult to qualify for than the mortgages that are backed by a government agency (FHA, VA, USDA). Typically, your credit score would need to be a minimum of 620-640 but to get the better rates your score would need to be above 740. When purchasing a home using a conventional mortgage you may be able to make a down payment as low as 3%. Some programs even allow for the use of down payment assistance programs. Just keep in mind that if you put a down payment of less than 20% or refinance with less than 20% equity then you will pay for mortgage insurance and your interest rate may be a little higher.
Conventional loans are often the best option for borrowers with a strong financial position and higher credit scores. Our Mortgage Consultants can help evaluate if a conventional mortgage might be the right type of home loan for you.
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