What is a conventional loan?
A conventional loan is a mortgage loan not backed by a government agency, such as the Department of Veterans Affairs or the U.S, Department of Housing and Urban Development. The insurance protects the lender if the borrower fails to repay the loan and encourages lenders to offer mortgages to a broader range of home buyers.
Conventional loans usually have more requirements since they are riskier without this insurance. Qualifing for a conventional loan, borrowers are not limited to qualifying based on income, location, or military status. Instead, anyone who can meet a lender’s standards is eligible for a conventional loan. A CL requires a down payment of at least 3.0%. If a down payment of 20% or more eliminates the need for mortgage insurance. A credit score of 620 or greater is required to qualify and a debt-to-income ratio of 45% or less.
There are two main categories of conventional loans: conforming and non-conforming. Conforming loans have maximum loan amounts set by the government. Government agencies like Fannie and Freddie Mac back and make rules for conforming loans. Non-conforming loans are less standardized. Eligibility, pricing, and features can vary widely by lender.
If you have questions about a conventional loan or other mortgage needs, our team is happy to talk through different options.
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