Wondering how to get a conventional home loan? Or if you meet conventional loan requirements? Or what is a conventional mortgage?
I am Melissa Kirk, Realtor® (melissakirkrealestate.com) and this is StephanieTromerhauser from Preferred Rate (preferredrate.com). You can connect with me: Insta @melissakirkrealtor, Twitter @RealtorMKirk, FB @melissakirkkw
So let's get to brass tacks a conventional mortgage is one that’s not guaranteed or insured by the federal government.
Most conventional mortgages are “conforming,” which simply means that they meet the requirements to be sold to government-sponsored enterprises that purchase mortgages from lenders and sell them to investors. This frees up lenders’ funds so they can get more qualified buyers into homes.
Conventional mortgages can also be non-conforming, which means that they don’t meet the above government guidelines. One type of non-conforming conventional mortgage is a jumbo loan, which is a mortgage that exceeds conforming loan limits.
Because there are several different sets of guidelines that fall under the umbrella of “conventional loans,” there’s no single set of requirements for borrowers.
However, in general, conventional loans have stricter credit requirements than government-backed loans like FHA loans. In most cases, you’ll need a credit score of at least 620 and a debt-to-income ratio of 50% or less.
Conventional loans have stricter credit requirements than FHA loans, you must have a credit score of at least 620 to qualify and they offer a slightly smaller down payment of 3%.
If you’re doing your research and considering the differences between a conventional loan and an FHA loan, it’s important to consider the cost of mortgage insurance. If you put less than 10% down on an FHA loan, you’ll have to pay a mortgage insurance premium for the life of your loan – regardless of how much equity you have. On the other hand, you won’t have to pay private mortgage insurance on a conventional loan once you reach 20% equity.
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