What Is a Conventional Loan? Exploring Conventional Loan Requirements
What Is a Conventional Loan?
If your home loan is conventional, that means that it’s not a part of any government program, and comes from a private lender. These loans come from a private lender like a bank or credit union, or another type of lender.
Conventional home loans make up more than half of all home loans, and there are two different types of conventional loans: conforming and nonconforming. Conforming loans have limits on the loan amounts that the government set, and have to abide by certain rules that have been set by Fannie Mae and Freddie Mac.
The maximum amount of a conventional loan can vary depending on the county. Usually, if you put down less than 20% of the home’s purchase price as your down payment, you will need to pay private mortgage insurance.
The other type of conventional loan is a nonconforming conventional loan. These loans don’t have limits like conforming loans, and can vary greatly with regard to interest rates and their features. Be careful when it comes to nonconforming loans and make sure to shop around.
What Are the Requirements for a Conventional Loan?
Conventional loan requirements can be more stringent than the requirements for FHA loans. Usually, you need a good credit score of 640 or higher. Additionally, you’ll need a maximum debt to income ratio of 43% to qualify.
You also can’t have any major credit report issues if you want to qualify for a conventional home loan. This means no bankruptcies or previous foreclosures.
You’ll also need to meet certain requirements for a down payment. If you want to avoid paying private mortgage every month, you need to put at least 20% down. You can put less than 20% down - sometimes as low as 3% - but beware of these additional monthly fees.
How Do You Get a Conventional Home Loan?
To get a conventional loan, start by talking to a trusted lender in your area. They can help you prequalify for a loan by pulling your credit and financial information. You’ll need to provide them with income statements, debt statements, a credit report, and so on so that they can get an accurate picture of your financial situation.
Conclusion
A conventional loan is a common type of home loan that has stricter requirements than something like an FHA loan. Talk to a lender to see if you qualify for a conventional mortgage loan.
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