Conventional Loan

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Conventional mortgages are made through private lenders and are the most common type of home loan. Conventional loans typically offer better rates, lower costs, and more flexibility than government loans.

Conventional loans may conform to Fannie Mae and Freddie Mac guidelines but don’t have to; a Jumbo loan is a conventional, non-conforming loan – just one example of the flexibility of conventional loans.

Benefits of Conventional Loans

Lower APR, lower costs, and more flexibility.

  • Down payment as low as 5%, or 3% for first-time homebuyers.
  • Higher borrower credit scores generally secure lower interest rates.
  • Avoid program specific fees of Government backed loans.
  • More choice in loan structure, and more property types.
  • Private Mortgage Insurance, if applicable is cancelled when 22% equity is achieved.

Conventional Loan Requirements

A great option for borrowers with stronger credit.

  • A credit score of at least 620. Higher credit scores will secure the best rates.
  • Debt-to-income ratio of less than 45% (exceptions can be made with strong compensating factors).
  • A down payment of 5% or more (may be as low as 3% for first-time home buyers).

Conventional vs. FHA

Some homebuyers may wonder whether conventional or FHA home loans would suit them best. Although there are more details and contingencies associated with each characteristic shown in the below table, it may help to understand the basic differences and similarities.

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Conventional FHA
Min. down payment amount 5% 3.5%
Eligible for investment home purchases? Yes No
Maximum loan limit (varies by county) $970,800 $970,800
Seller-paid closing costs allowed? Yes Yes
Gift funds allowed? Yes Yes
Fixed- and adjustable-rate options available? Yes Yes

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