Learn About a Conventional Loan
A conventional loan is a type of mortgage that is not insured or guaranteed by the federal government, unlike government-backed loans such as FHA, VA, and USDA loans. This means that the lender assumes the risk of the loan and borrowers are required to meet certain eligibility criteria and financial requirements. If you're thinking of buying a home, check out the information below to see if a conventional loan may be a good option for you.
What is a Conventional Loan?
A conventional loan is a loan that is not backed by the government, per se. Some of the most common conventional loans are Fannie Mae, Freddie Mac, Jumbo, and Non-QM loans. Fannie Mae/Freddie Mac loans (also known as “Conforming Loans” because they conform to Fannie Mae and Freddie Mac guidelines) require at least 3% down payment and a minimum credit score of 620 in most cases.
Who is Eligible for a Conventional Loan?
To be eligible for a conventional loan, you will need to meet certain criteria such as having good credit and a stable income. Typically, borrowers will need at least a credit score of at least 620, although it may require a higher score. You will also need to provide proof of income, which can include pay stubs, W-2s, and tax returns.
What are the Benefits of a Conventional Loan?
One of the benefits of a conventional loan is that Fannie Mae/Freddie Mac allow for higher loan amounts than their counterpart-the FHA loan. The current loan amount maximum for a Fannie Mae/Freddie Mac loan is $766,550 for a single family home. Another benefit is that your mortgage insurance may cancel much sooner with a conventional loan than with an FHA loan. Typically, with FHA, you will pay the monthly mortgage insurance for 30 years on a 30 year loan (there are some exceptions to have the insurance drop after 11 years with a higher down payment).
What are the different types of Conventional Loans?
The most common type of conventional loan is a fixed-rate mortgage, which offers stable monthly payments over a set interest rate for the life of the loan. Another popular option is an adjustable-rate mortgage, which offers lower initial interest rates that can adjust up or down over time. Many borrowers also choose to take advantage of jumbo loans, which are designed for higher-priced homes that exceed the conforming loan limits of a traditional mortgage.
Conventional Loan Limits*
1-Unit $766,550
2-Unit $981,500
3-Unit $1,186,350
4-Unit $1,474,400
*as of 1/1/2024
If you have any additional questions, be sure to contact HomeTrust Mortgage to see if a conventional loan is the right choice for you.
