what is a conventional loan?
Conventional loans are often referred to as “conforming loans” because they meet the guidelines set by Freddie Mac and Fannie Mae. The most notable guideline is that the maximum loan amount for a 1-unit property is $647,200 (except in high-cost areas where higher limits may be available).
conventional loan pros
There are several benefits of conventional financing, including:
- You can buy a primary residence, second home, or rental property with most conventional loans
- You have the choice of fixed rates, adjustable rates (ARMs), and loan-term options from 10-30 years
- You pay no monthly mortgage insurance with a down payment of 20% or more
- Mortgage insurance generally costs less than with government loans and may be cancelled when your home equity reaches 20%
conventional loan requirements
There are many specific conventional loan programs, all with varying requirements. In general, you will need a FICO score of at least 620. Often times, there is no first-time homebuyer requirement, meaning you can finance your home with a conventional loan whether it’s your first home or your fifth.
Mortgage insurance is required with most conventional loan programs, although you do have the option to eliminate it with a 20%-or-more down payment.