What are Conventional Loans?
Conventional loans are not guaranteed or insured by the Veteran’s Administration (VA) or Federal Housing Authority (FHA). The majority of conforming conventional loans abide by the mortgage guidelines established by the government-sponsored entities known as Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation).
Conventional loans with less than 20% down require private mortgage insurance. Since Conventional Loans are not insured by the federal government there is no guarantee for the lender should the borrower default. These loans are considered higher risk for lenders and generally have more restrictive underwriting guidelines.
Conventional conforming home loans:
- Loan amounts up to $726,200
- Credit score impacts mortgage interest rate
- No mortgage insurance required with 20% or more down payment
- Can put down as low as 3% (private mortgage insurance required)
- Mortgage insurance may not be required for the life of the loan
- Guidelines differ slightly between Fannie Mae and Freddie Mac
Jumbo conventional loans:
- Loan amounts greater than $726,200 and up
- Credit score impacts the ability to obtain a mortgage.
- Jumbo guidelines vary and are typically more strict
- Can require more documentation
- As low as 10% down
- Most require manual underwrite which is the most strict underwriting approach today
A few benefits of a Conventional loan:
- Conventional loans allow for PMI (Private Mortgage Insurance) to be dropped on the date that the mortgage balance reaches: (1) 80% of the current property value if the seasoning of the mortgage is greater than 5 years, or (2) 75% of the current property value if the seasoning of the mortgage is between 3 and 5 years. The value must be supported with an appraisal.
- Allows for down payment and closing costs to be gifted by a family member.
- Conventional loans offer a loan limit of $726,200
- As low as 3% down conventional loans