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A conventional mortgage is one that is not guaranteed or insured by the federal government.
A conventional loan can be either a conforming or non-conforming loan. Most conventional loans are conforming.
· Conforming loan – meets the requirements to be sold to Fannie Mae or Freddie Mac
· Non-conforming loan – does not meet the requirements to be sold to Fannie Mae or Freddie Mac. A jumbo loan is an example of a non-conforming loan because it exceeds the conforming loan limits.
Conventional Loan Highlights
· Have stricter credit requirements than FHA loans
· Have a higher down payment requirement than government backed loans (in most scenarios)
· Once 20% equity is reached on the loan, private mortgage insurance (“PMI”) is not required.
· Are available in all areas of the country
· There is no maximum income ceiling disqualifier
· Conventional loan interest rates are typically higher than a VA loan and lower than an FHA loan
The PROs and CONs of a Conventional Loan
· PROs
Low Interest Rates – loan interest rates are associated with a borrower’s creditworthiness (including a high credit score), which can result in lower rates.
Higher Loan Limits – loan limits are higher with conventional loans and are even higher with non-conforming conventional loans.
Flexibility – private lenders have more flexibility (credit score, down payment requirements and term lengths) than government issued loans and hence there is a high likelihood that more options exist.
CONs
Higher Credit Score Requirements – a higher credit score is required for a conventional loan versus an FHA loan.
Higher Down Payment Requirements – a conventional loan most likely will require a slightly higher minimum down payment than what is required with government backed loans.
Stricter Qualifying Requirements – a conventional loan focuses on a borrower’s personal financial situation which may be more closely scrutinized because the lender is taking more risk on the loan versus a loan that meets government agency’s eligibility requirements.
To see if a conventional loan would be right for you, click the find out more button below and our team of experts will be in touch.
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