What is a Conventional Mortgage?

A conventional mortgage is a home loan that is not insured or guaranteed by a government agency, such as the FHA, VA, or USDA. Instead, it is offered by private lenders like banks, credit unions, and mortgage companies. Conventional loans are typically classified into two categories: conforming loans, which meet the loan limits and standards set by the Federal Housing Finance Agency (FHFA), and non-conforming loans, which include jumbo loans or other mortgages that fall outside those limits.

Conventional mortgages are a popular choice for borrowers with good credit and stable financial profiles because they often offer competitive interest rates and flexible term options. These loans usually require a higher credit score and a down payment of at least 3-5%, though a larger down payment can result in better loan terms and potentially eliminate private mortgage insurance (PMI). Without the backing of a government agency, conventional loans provide flexibility in terms but may require more stringent qualifications. They are ideal for buyers looking for a traditional financing option with predictable costs and terms.

Key Features

    • Conforming loans meet the guidelines set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, including loan limits and credit requirements.

    • Non-conforming loans (e.g., jumbo loans) exceed these limits or have unique terms.

  • Down Payment:

    • Typically requires a higher down payment than government-backed loans.

    • Down payments can range from 3% to 20%, depending on the borrower's financial profile and lender requirements.

  • If the down payment is less than 20%, borrowers usually need to pay for PMI, which protects the lender in case of default.

    • Generally requires a good credit score (usually 620 or higher) and a stable financial history.

    • Borrowers with higher credit scores may qualify for better interest rates.

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