Conventional

Conventional Loans

A conventional loan is a mortgage loan that's not backed by a government agency. These loans come in all shapes and sizes, and while they don't provide some of the benefits as FHA, VA and USDA loans, conventional loans remain the most common type of mortgage loan.

What Is a Conventional Mortgage?

Conventional loans are originated, backed and serviced by private mortgage lenders like banks, credit unions and other financial institutions.

Conventional loans are broken down into conforming and nonconforming loans, depending on whether or not they conform to guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), the two government-backed mortgage companies that own many mortgages in the U.S.

There's no right mortgage loan for everyone, so it's important to know both the benefits and drawbacks of each of your options before you choose.

What Are the Advantages of a Conventional Loan?

○ Low costs: A high credit score can help you qualify for a low interest rate. Plus, you can request to have the insurance requirement removed once your loan-to-value ratio reaches 80%. In contrast, the mortgage insurance premium that comes with an FHA loan may remain for the life of the loan, and the same goes for the guarantee fee on a USDA loan.

○ Higher loan limits: While conforming loans do have limits, you can go even higher with jumbo conventional loans if you need to. You may not get that kind of flexibility with government-insured loans.

○ Flexibility for some: Private mortgage lenders have more flexibility with conventional loans than they do with government-insured loans, primarily because they don't need to follow the guidelines set by those government agencies.

Pros

○ Low costs
○ Higher loan limits
○ Underwriting Flexibility

Cons

○ Higher credit score requirements
○ Higher down payment requirements
○ Stricter qualifying guidelines

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