Perfect Loan for First-time Buyers
Conventional loans, also known as conventional mortgages or conventional financing, are mortgage loans that are not insured or guaranteed by a government agency. Unlike FHA loans or VA loans (backed by the Department of Veterans Affairs), conventional loans are solely funded by private lenders such as banks, credit unions, and mortgage companies.
Empowering Borrowers with Favorable Terms
Conventional loans provide flexibility and a wide range of options for borrowers who meet the necessary eligibility criteria. They are popular among borrowers with good credit scores, stable income, and the ability to make a significant down payment. Consulting with a mortgage professional can help determine the best loan option based on individual financial circumstances and goals.
Here are some key features of conventional loans:
- 1Loan Requirements: Conventional loans typically have stricter eligibility requirements compared to government-backed loans. Lenders consider factors such as credit score, income, employment history, and debt-to-income ratio when determining loan approval.
- 2Down Payment: Conventional loans generally require a higher down payment compared to FHA loans. Traditionally, a down payment of at least 20% of the purchase price is required to avoid private mortgage insurance (PMI). However, it is possible to secure a conventional loan with a down payment as low as 3% through certain programs, although PMI would be required in such cases.
- 3Loan Limits: Conventional loans have loan limits set by the Federal Housing Finance Agency (FHFA). These limits vary by location and are adjusted annually to reflect changes in home prices. Borrowers seeking a loan amount that exceeds the conforming loan limit may need to apply for a jumbo loan, which typically has different requirements and terms.
- 4Mortgage Insurance: As mentioned earlier, private mortgage insurance (PMI) is required for conventional loans with a down payment less than 20%. PMI protects the lender in case the borrower defaults on the loan. Once the borrower’s equity reaches 20% through principal payments or appreciation, PMI can typically be canceled.
- 5Interest Rates: Conventional loans offer competitive interest rates based on factors such as creditworthiness, loan term, and market conditions. Borrowers with strong credit profiles tend to qualify for better interest rates.
- 6Loan Types: Conventional loans come in different types, including fixed-rate mortgages (where the interest rate remains constant over the loan term) and adjustable-rate mortgages (where the interest rate is fixed for an initial period and then adjusts periodically).
