What is a Conventional Loan?
Conventional Loans, sometimes called "Fannie Mae" or "Freddie Mac" loans, are loans securitized by "government sponsored entities (GSEs)". A conventional loan is one of the most common products in the mortgage marketplace.
Conventional mortgage loans are available to consumers with as little as 3% down, and can offer competitive rates and programs, especially for borrowers with good credit. It's important to note that with conventional loans, rates are based in part on down payment and credit scores, so rates can vary quite a bit depending on a borrower profile.
Perhaps the nicest feature of conventional loans is the ability for a borrower to get a competitive rate with a low down payment and mortgage insurance that can eventually be removed from the loan payment (once the borrower accumulates a certain amount of equity in their home).
Conventional Loan FAQ's
Do I need good credit for a Conventional Mortgage?
Yes, relatively speaking. Most conventional loan products require a minimum FICO score of 620. You cannot have recent bankruptcy (at least 2 years out for Chapter 13, 4 years for Chapter 7/11), and if you've had a foreclosure, aside from extenuating circumstances, you'll have to wait 7 years before being approved for conventional mortgage financing.
Do I Need 20% Down for a Conventional Mortgage?
No! Absolutely not! This is one of the biggest misconceptions in the home buying process. Conventional loans are available with as little as 3% down! While mortgage insurance (PMI) may be required with less than 20% down, conventional loans are available with lesser down payments.
Is there a limit to how much I can borrow with a Conventional Mortgage?
Yes - each year the GSEs publish updated conventional loan limits based on median home prices by county. There is a "base" limit set that applies to most of the country, however certain high cost areas may have higher loan limits than neighboring areas with lower median prices.
Conventional loans are a great option for many borrowers, and are available for many different situations - first time buyers, investment loans, vacation homes, self-employed and salaried borrowers, and more! For more information or specific questions, ask an expert here for an instant response!