Learn About a Conventional Loan
A conventional loan is a type of mortgage that is guaranteed by Fannie Mae or Freddie Mac, 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 mortgage that is originated and funded by private lenders such as banks, credit unions, and mortgage companies. It is a type of loan that is not insured or guaranteed by the government. In other words, the lender assumes the risk of the loan instead of the government. A conventional loan can be used to purchase or refinance a home or investment property. It is important to know that there are two types of conventional loans: conforming and non-conforming loans.
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, a stable income, and a low debt-to-income ratio. The exact requirements vary and depend on the type of conventional loan you are applying for. 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 main benefits of a conventional loan is that they have higher loan limits than other programs such as FHA loans. Mortgage insurance is not mandatory with conventional loans if you put down at least 20% of the purchase price of the home, saving you hundreds of dollars in monthly mortgage payments.
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.
If you have any additional questions, be sure to contact The French Team to see if a conventional loan is the right choice for you.
