Whether you plan to purchase a new home or refinance an existing mortgage, knowing the ins and outs of conventional home loans will help you in securing the right financing. Let’s go over the details of conventional mortgages, such as what they are, how to qualify, and what the process of getting one looks like.
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What Is a Conventional Home Loan?
Conventional mortgages are the most common type of loan in the real estate industry. They are originated and funded by private lenders such as banks, mortgage companies, credit unions, and other financial institutions, and then are often sold to government-sponsored entities such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Conventional mortgages can be used for refinancing or new purchases, feature competitive rates, and offer terms ranging from five to 30 years.
There are typically two types of conventional home loans — conforming and non-conforming. Conforming mortgages are loans that meet certain conditions as outlined by Fannie Mae and Freddie Mac. Conforming loans typically require a loan limit that doesn’t exceed $548,250. Non-conforming loans, often referred to as jumbo loans, are mortgages for loan amounts above those limits–typically used for luxury homes.
Pros and Cons of Conventional Loans
When searching for a loan, it’s important to know the pros and cons of each type of loan, especially as it pertains to your individual circumstances. Benefits of conventional loans include:
- Lower interest rates for qualifying borrowers
- The option to not pay private mortgage insurance
- Higher loan limits
- More flexibility
Benefits of Conventional Loans
- Qualifying for same day pre-approvals
- Taking advantage of our Zero Dollar Down Loan program
- Financing purchases, rate and term refinances, and cash out refinances
- Financing primary, secondary or investment properties
- Financing condos, single family homes, manufactured homes and multifamily (2-4) units
- Taking advantage of a month without mortgage payments
- Having your pick of options with and without escrows or impounds
Flexibility is a key benefit to conventional mortgages, because they are not limited to the guidelines set by government-backed loans. This means we can offer qualified home buyers a wider variety of term lengths, down payment options, and other features.
Although qualifying for a conventional home loan typically requires a higher credit score, healthy credit history, and a higher down payment, buyers who can meet these qualifications, can obtain much better interest rates and lower fees than government-insured loans can offer.
For some, there are certain drawbacks to conventional loans. Conventional loans typically will not have many of the perks seen in government-insured loans. Benefits of government-backed loans include reduced requirements such as lower credit score and smaller down payment amounts. Despite this, conventional loans remain the most popular loan choice today.
Conventional Home Loan Requirements & Process
To receive all the benefits associated with a conventional loan, borrowers will have to meet certain basic requirements.
You might find in your search for a loan that other types of loans are more beneficial for you. For example, first-time home buyers, borrowers with more debt, and those with more modest credit ratings may have trouble qualifying for a conventional mortgage. Others who may not qualify for a conventional mortgage include those who have filed for bankruptcy or don’t have cash reserves for a down payment. If you fall into those categories, you might consider looking into something like an FHA loan.
Although qualification requirements may vary based on loan amount and lender, the common requirements for securing a conventional mortgage include:
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A credit score of 580 or higher.
We accept credit scores as low as 580 for conforming conventional loans. Higher credit scores, however will likely result in better loan terms.
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Down payment.
Although not all conventional loans require large down payments, the more money you put down, the lower your interest rate will likely be. We accept down payments as low as 3% for conforming loans—or with no down payment at all, for buyers who qualify for our Zero Dollar Down Loan.
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Low debt-to-income ratio.
Typically, lenders require a debt-to-income ratio of 36–43% or less, but may be flexible if you can make a higher down payment.
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Proof of income and assets.
Lenders will need to see proof that you can afford your mortgage payments. This may include employment verification, documentation of assets, gift letters, and more.
The Home Loan Expert Can Help!
Although the process of buying a home and securing financing can be overwhelming, the Experts are here to streamline and simplify the loan process for you. At The Home Loan Expert, we move quickly to find you the conventional loan you need at the lowest possible rate with terms that fit your budget — completing the process, underwriting, closing, and funding all in house. That’s something you won’t find with a mortgage broker!
We’ll also walk you through the process of securing your conventional home loan step by step, ensuring that you feel confident in your loan. Our team closes conventional loans quickly, easily, and with the best customer service to make the process simple.
With our easy-to-use mortgage calculator, you can easily get an idea of the various loan options available to you. And our team is always ready to help! Contact us to see how much we can save you on your new conventional loan.
Learn About Other Loan Types
Adjustable Rate Mortgage
When you’re shopping for a new home, one of your most important decisions will be what kind of mortgage to take out to finance your home. Your mortgage type will be the top factor that influences how much you can borrow(and thus what kind and size of home you purchase), as well as your monthly budget moving forward. For a variety of reasons, an adjustable-rate mortgage (ARM) can be an appealing choice in the short term, but it can seem scary as well. However, it’s important to understand how ARMs work, since this type of loan has repayment terms that may become less desirable over time.
FHA Loan
The home buying process can be overwhelming and stressful, especially if you’re buying your first home (or if your financial circumstances make it more difficult to get an affordable loan). For many home buyers, getting a loan insured by the Federal Housing Administration (FHA) can be extremely helpful in not only securing the necessary financing to buy but also achieving the dream of owning a home (even while facing tough financial situations). FHA loans allow lenders to make home buyers better deals, resulting in lower down payments, lower closing costs, and easier credit qualifying. Here, we’ll go over the ins and outs of FHA loans, including what they are, who qualifies, and what the process of securing one looks like.
Fixed-Rate Loans
Fixed-rate mortgages—also called “conventional mortgages”—are basically the bread and butter of the mortgage industry. And that’s because this loan type is still the most reliable way to finance your home, offering affordability, flexibility, and so much more. As their name suggests, fixed rate loans have the same rate throughout the entire term of the loan. So even if interest rates rise while you’re paying off your loan, your rate and payment amount are locked in for the entire loan term. That’s why fixed-rate mortgages are so popular–they offer protections that ARMs can’t.
