Learn About a Conventional Loan
A Conventional Loan is a home loan that is not insured or guaranteed by a government agency such as FHA, VA, or USDA. Conventional loans are one of the most common types of mortgages and can be used to purchase or refinance a primary residence, second home, or investment property. If you're thinking of buying a home, check out the information below to see if a conventional loan may be a good option for you.
What is a Conventional Loan?
A conventional loan is a mortgage that can be originated by a mortgage broker, like Minuteman Mortgage, or a bank, or credit union. All lenders adhere pretty much to the same underwriting guidlines established by Fannie Mae and Freddie Mac. It is a type of loan that is not insured or guaranteed by the government. In other words, the lender assumes the risk of the loan instead of the government. A conventional loan can be used to purchase or refinance a home or investment property. It is important to know that there are two types of conventional loans: QM - Qualified Mortgage and Non-QM. The Non-QM loans give borrowers additional options to qualify other than providing income documentation.
Who is Eligible for a Conventional Loan?
To be eligible for a conventional loan, you will need to meet certain criteria such as having good credit, a stable income, and a low debt-to-income ratio. The exact requirements vary and depend on the type of conventional loan you are applying for. Typically, borrowers will need at least a credit score of at least 620, although it may require a higher score. You will also need to provide proof of income, which can include pay stubs, W-2s, and tax returns.
What are the Benefits of a Conventional Loan?
One of the biggest advantages of conventional financing is the ability to finance higher loan amounts than may be available through government-backed programs such as FHA. Conventional loans also do not have the upfront mortgage insurance premium required on FHA loans, potentially saving you thousands of dollars at closing.
With a 20% down payment, there is typically no private mortgage insurance (PMI). But you don't necessarily need 20% down to qualify. Conventional financing may allow as little as 3% down, with the cost of mortgage insurance depending on factors such as your credit profile, down payment, and loan characteristics.
What are the different types of Conventional Loans?
The most common type of conventional loan is a fixed-rate mortgage, which offers stable monthly payments over a set interest rate for the life of the loan. Another popular option is an adjustable-rate mortgage, which offers lower initial interest rates that can adjust up or down over time. Many borrowers also choose to take advantage of jumbo loans, which are designed for higher-priced homes that exceed the conforming loan limits of a traditional mortgage.
If you have any additional questions, be sure to contact Brian Merritt - Minuteman Mortgage to see if a conventional loan is the right choice for you.
