Conventional Loans

A conventional loan is a type of mortgage that is not backed by a government agency like the FHA, VA, or USDA. It’s funded by private lenders and typically offers competitive interest rates and flexible terms for qualified borrowers.

Conventional loans offer benefits such as competitive interest rates, flexible loan terms, and higher loan limits compared to government-backed loans. They also allow borrowers to avoid private mortgage insurance (PMI) with a 20% down payment.

To qualify for a conventional loan, lenders typically look for:
• A credit score of at least 620.
• A debt-to-income (DTI) ratio of 43% or lower.
• A down payment, often 5% or more (though 3% options are available for first-time buyers).
• Stable income and employment history.

The required down payment for a conventional loan can vary. Many programs require at least 5%, but some allow for as little as 3% for first-time buyers. A 20% down payment is ideal to avoid PMI.

Yes, conventional loans have limits set by the Federal Housing Finance Agency (FHFA). These limits vary by location and may be higher in areas with a higher cost of living. For loans exceeding these limits, a Jumbo Loan may be required.

Conventional loans are better suited for borrowers with strong credit and a larger down payment, while FHA loans are designed for those with lower credit scores and limited savings. FHA loans require mortgage insurance for the life of the loan, whereas conventional loans allow you to remove PMI once you reach 20% equity.

PMI is an insurance policy that protects the lender if the borrower defaults on the loan. It’s typically required for conventional loans when the down payment is less than 20%. PMI can be removed once you reach 20% equity in your home.