What is a Conventional Mortgage Loan?
A conventional loan is one that is not insured (or guaranteed) by the government. Loans that typically are government backed are FHA Home Loans, VA Home loans, and USDA Loans for rural areas. Conventional loans are usually a Fannie Mae or Freddie Mac conforming type of loan. “Fannie and Freddie” establish a set of guidelines that lenders follow and then those loans are often sold to investors.
Types of Conventional Loans
The following are examples of conventional loans and they are the most widely used loans even more than government loans:
- Conforming (Fannie and Freddie)
- Non-Conforming – also are jumbo
- Sub Prime Mortgages – often for those with low scoress or cannot document income
- Portfolio Loans – Lenders set their own guidelines
- Jumbo Mortgages
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Pros and Cons of Conventional Mortgages
- Their are fewer restrictions vs government loans
- Flexibility on the term (10, 15, 20, 25 and 30 yr terms)
- Low fixed interest payments
- Available in adjustable rates for those who plan to be in the home for only a few years
- No upfront mortgage insurance fee
- Most buyers qualify for a conventional mortgage
- PMI (Private Mortgage Insurance) is required with less than 20% down
- Fewer options for those with poor credit
- Larger down payment are beneficial
- Fewest restrictions – for example, you dont need to be a veteran, your home does not have to be in a rural area, etc
Conventional Loan Rates
The rates are determined by indexes that change daily. Your personal scenario and other factors also are taken into consideration when determining your rate. The lower the credit score and the more you put down will give you the best chances for a low rate. The best way to find out is to CLICK TO SPEAK WITH A LOAN OFFICER for a free consultation with no obligation to move ahead with a loan.
Documentation Needed for a Conventional Loan
You will need to document your income and assets by providing the following..
- 30 days of pay stubs
- 2-3 months’ bank statements
- Last 2 years tax returns
- Last 2 years W2’s
- Copies of stock or brokerage accounts
- Retirement or 401k Statement
- Plus copies of other documents depending upon your situation.
Mortgage Insurance (PMI) for a Conventional Loan
We mentioned above that if you put less than 20% down, you will be required to have a monthly PMI payment. The more you put down, the lower your PMI payment will be. The higher your credit score, the lower your PMI payment will be. PMI is regulated and you should have little concern about being over charged.
CLICK TO SPEAK WITH A LOAN OFFICER to find out what your estimated payment will be including PMI.
Conventional Loan Limits
The conventional loan limits are as follows…
- 1 unit home $453,100
- 2 unit home $580,150
- 3 unit home $701,250
- 4 unit home $871.450
However, in high priced areas like Los Angeles, the limit is much higher at $679,650. Check with one of our loan officers to see if you are in one of those exception areas.
Properties That are Eligible For a Conventional Loan
- Single family residences that are stand alone and detached from others
- Planned Unit Developments (PUDS)
- 2-4 unit properties
- Manufactured Homes
Conventional Mortgage Loans Frequently Asked Questions
Do I need to have money for a down payment? Yes, there are no conventional loan programs that are zero down.
Can I get a conventional loan after a bankruptcy? Yes you can, click to read more about finding a mortgage after a bankruptcy.
I am recently divorced and dont have a two year work history. Can I get a conventional mortgage? It is possible. Click to read more about finding a mortgage after a divorce.
My credit score is 580, can I get a conventional loan? Most conventional loans require a score of 620. Contact one of our loan officers to discuss your options. You may be better suited for an FHA loan.
I am self employed and cannot fully document my income, can I qualify? Most likely not. However, the good news is that we can most likely find a loan for you anyway. Click to read more about Bank Statement Loans.