Conventional Loans
A conventional loan is a type of mortgage that is not insured or guaranteed by a government agency. Unlike government-backed loans such as FHA (Federal Housing Administration), VA (Department of Veterans Affairs), or USDA (United States Department of Agriculture) loans, conventional loans are backed by private lenders and typically follow guidelines set by two government-sponsored entities: Fannie Mae and Freddie Mac.
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Key Features
It's important to note that within the category of conventional loans, there are also conforming and non-conforming loans. Conforming loans meet the criteria set by Fannie Mae and Freddie Mac, while non-conforming loans, such as jumbo loans, exceed these limits. Borrowers should carefully consider their financial situation and explore different loan options to determine the most suitable mortgage product for their needs.
No Government Guarantee
Conventional loans do not have the backing of a government agency. If the borrower defaults, the lender bears the risk.
Credit &
Down Payment Requirements
Conventional loans often have stricter credit score and down payment requirements compared to some government-backed loans. Typically, a higher credit score and a larger down payment are needed for favorable terms.
Loan Limits
Conventional loans have loan limits set by Fannie Mae & Freddie Mac. These limits vary by location and are adjusted annually.
Fixed or
Adjustable Rates
Both fixed and APR products are available.
Private Mortgage Insurance (PMI)
If the down payment is less than 20%, lenders often require the borrower to pay for private mortgage insurance to protect the lender in case of default.
Versatility
Conventional loans can be used for various purposes, including purchasing a home, refinancing an existing mortgage, or obtaining cash-out for debt consolidation or renovating a home for home improvements.