Conventional Loans: Flexibility and Competitive Rates

What Are Conventional Loans?

Conventional loans are mortgage loans that are not insured by any government agency. They are available through private lenders and typically offer competitive interest rates and flexible terms. These loans are ideal for borrowers with good to excellent credit and stable financial histories.

Requirements for Conventional Loans

• Credit Score: A minimum credit score of 620 is required, though higher scores can secure better interest rates.
• Down Payment: Typically, a minimum of 3% to 5% down payment is required, depending on the loan program and borrower profile. However, a 20% down payment eliminates the need for private mortgage insurance (PMI).
• Debt-to-Income Ratio: Conventional loans allow a DTI up to 50%, but 36% or lower is preferred for the best terms.
• Loan Limits: For 2024, the conventional loan limit is $766,550 for most areas, with higher limits in high-cost areas.
• Stable Income: Proof of steady income and employment.
• Property Type: Can be used for primary residences, secondary homes, or investment properties.

Benefits of Conventional Loans

• Competitive Interest Rates: Often lower than those of FHA loans for borrowers with good credit.
• Flexible Terms: Choose from various term lengths, such as 15, 20, or 30 years.
• No PMI with 20% Down: Avoid the extra cost of private mortgage insurance by putting down at least 20%.
• More Loan Options: Available for a wider range of property types and uses.

Differences from Other Loan Types

• No Government Insurance: Unlike FHA or VA loans, conventional loans are not government-backed.
• Higher Credit Standards: Typically require higher credit scores and more stable financial histories.
• Varied Down Payment Options: More flexibility with down payment amounts and terms.

How to Apply for a Conventional Loan

1. Check Your Credit Score: Ensure your credit score meets the lender’s requirements.
2. Determine Your Budget: Use our mortgage calculator to see what you can afford.
3. Prepare Documentation: Gather proof of income, tax returns, and employment history.
4. Shop for Lenders: Compare rates and terms from different lenders to find the best fit.
5. Submit Your Application: Complete the loan application and provide all necessary documents.
6. Home Appraisal: Your lender will arrange for an appraisal to determine the property’s value.
7. Close on Your Loan: Review and sign the loan documents to complete the process.