Conventional Loans
- Credit score of at least 620. Borrowers with a score of 740 or more get the best loan terms.
- Debt-to-income ratio below 45% (total monthly debt/payments – car, credit cards, rent/mortgage, etc. – divided by monthly pre-tax earnings)
- Proof of funds available for a down payment
- Flexibility on loan terms (15,20,30 year)
- No home price maximums with a non-conforming home loan
- No PMI with a 20% or greater down payment
- Higher credit-score threshold and lower debt-to-income ratio to meet than with FHA loan
- PMI insurance with < 20% down payment
- Meeting strict eligibility requirements overall
What is a conventional loan?
A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or Department of Agriculture loan programs (USDA)).
A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or Department of Agriculture loan programs (USDA)).
The Advantages of a Conventional Mortgage
While all the other programs may get more press, the more strict requirements for conventional mortgages gives home buyers a head start over other buyers who have lesser qualifications.
Homeowners with good credit and money for a larger down payment could avoid paying upfront mortgage insurance or monthly mortgage insurance like an FHA loan. There are several reasons why a conventional mortgage loan could be the best option for your next home purchase.
Faster Loan Underwriting
Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans. Also, with a conventional loan, sellers do not face an exhaustive FHA inspection, which sometimes then requires time-consuming repairs.
More Options
Conventional loans come in all different types and sizes. Do you want a 10 year fixed mortgage? Looking for an adjustable 7-year term. If so, a conventional loan is the only place to find these options.
Optional Escrow Accounts
A conventional loan also usually offers an option to pay taxes and insurance directly, without adding them to your monthly mortgage payment through an escrow account. If you want the flexibility and freedom to pay taxes and insurance separately, a conventional mortgage is your only option.
Security
Conventional mortgages are usually fixed-rate products, meaning that once an interest rate is locked in, the borrower will keep that same payment for the life of the loan. Borrower’s payments stay the same month to month, whether interest rates climb or housing prices fall. Even if interest rates fall far enough to make refinancing tempting, borrowers have the flexibility with a conventional mortgage because they have already met the tough requirements to get the mortgage.
While all the other programs may get more press, the more strict requirements for conventional mortgages gives home buyers a head start over other buyers who have lesser qualifications.
Homeowners with good credit and money for a larger down payment could avoid paying upfront mortgage insurance or monthly mortgage insurance like an FHA loan. There are several reasons why a conventional mortgage loan could be the best option for your next home purchase.
Faster Loan Underwriting
Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans. Also, with a conventional loan, sellers do not face an exhaustive FHA inspection, which sometimes then requires time-consuming repairs.
More Options
Conventional loans come in all different types and sizes. Do you want a 10 year fixed mortgage? Looking for an adjustable 7-year term. If so, a conventional loan is the only place to find these options.
Optional Escrow Accounts
A conventional loan also usually offers an option to pay taxes and insurance directly, without adding them to your monthly mortgage payment through an escrow account. If you want the flexibility and freedom to pay taxes and insurance separately, a conventional mortgage is your only option.
Security
Conventional mortgages are usually fixed-rate products, meaning that once an interest rate is locked in, the borrower will keep that same payment for the life of the loan. Borrower’s payments stay the same month to month, whether interest rates climb or housing prices fall. Even if interest rates fall far enough to make refinancing tempting, borrowers have the flexibility with a conventional mortgage because they have already met the tough requirements to get the mortgage.
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Summary
Here is a summary of the advantages, and also disadvantages, of conventional mortgages. Advantages • Mortgage insurance not required if 80% loan to value (LTV) or less • Cancel existing mortgage insurance at 80% LTV • Can be used on all property types • More loan program options • Can hold numerous conventional loans • No maximum loan limit Disadvantages • Higher down payment requirements • Higher credit score requirements • May be more difficult to qualify for than FHA or other government-backed loan • Mortgage insurance still required for loans above 80% LTV |
