What is a Conventional Loan?
A conventional mortgage is a loan that is not guaranteed or insured by any government agency. A conventional loan conforms to rules by Fannie Mae and Freddie Mac. These loans are available in fixed or adjustable rates, and terms typically run from 10-30 years.
What are the requirements for a Conventional loan?
Requirements for conventional mortgages can vary depending on the lender, but most follow these guidelines:
Pros of a Conventional Loan
Conventional loans make up about 60% of all mortgage options. Some conventional loan programs allow you to go as low as 3% for a down payment. Mortgage insurance is a big advantage with conventional loans, as compared to FHA. With conventional, you only pay mortgage insurance if your down payment is less than 20%, and there is no upfront insurance fee. In addition, you only need to pay mortgage insurance until home equity reaches 20%. Conventional loans can also be used for a primary residence, second home, or rental property.
Cons of a Conventional Loan
Because of the low rates and flexible terms, conventional loans can be harder to qualify for than FHA loans, depending on your financial situation. Credit scores generally need to be higher for conventional loans, and debt-to-income ratio needs to be lower, when comparing to requirements for other loan options. There is also a loan limit that is updated yearly. Limits are higher for designated high-cost areas.
Finding the best loan for your personal needs can be overwhelming. New England Home Mortgage strives to help you understand all your options and find the best fit for your financial situation. Read an overview of our mortgage options here, or contact us today for an in-person appointment.