Ready for a home loan with flexibility and no strings attached? It’s attainable.
With a Conventional Mortgage, you can structure your home loan to your needs.
You’ve worked hard for that stellar credit score—make it pay off with a Conventional Mortgage.
Forget dealing with mortgage insurance, home inspections filled with red-tape, and high interest rates. With a conventional mortgage, you hold the power to select and purchase the home that’s right for your needs.
What is a Conventional Mortgage?
A Conventional Mortgage is a home loan that isn’t backed up by the federal government (such as FHA, VA, USDA), and therefore offers flexibility to the borrower in how they can structure the loan. Conventional mortgages adhere to the guidelines established by Fannie Mae and Freddie Mac, which set limits on the amount that can be borrowed within the county of the home being purchased. Additionally, in 2017 Fannie Mae and Freddie Mac will increase the loan limits for conventional loans. Conventional mortgages are available as fixed-rate loans, or adjustable-rate mortgages (ARM). Conventional mortgages are great options for borrowers with good credit scores and cash to offer as a down payment, since they traditionally offer some of the lowest interest rates for mortgages.
Benefits of a Conventional Mortgage
No Private Mortgage Insurance Required for Conventional Mortgages
One of the biggest money-savers of conventional mortgages is the ability to avoid private mortgage insurance (PMI). While conventional mortgages are typically available with a 5% down payment, if borrowers can offer 20% as a down payment (the traditional amount for a conventional mortgage), no PMI will be required. Many other mortgage options require PMI at an upfront rate of 1.75%, followed with annual payments of 1.25% each year—avoiding PMI can save you thousands of dollars!
Build Equity with Conventional Mortgages
Because conventional mortgage borrowers can usually offer 20% as a down payment, they’ve already built up a large amount of equity in their home right at the loan signing. Having equity in a home protects borrowers in the case of needing to sell if the housing market goes down, and prevents borrowers from owing more for a home than what it’s worth.
Conventional Mortgages Offer Flexible Loan Structures
Conventional mortgages allow borrowers to set up the loan to how they best see fit. Fixed-rate and adjustable-rate mortgages are both available for conventional mortgages, so borrowers can choose the loan based on current interest rates available and how long they project to live in the home being purchased.
Funds Available for Additional Financing
Many government-sponsored loans have restrictions on what the home loan can go toward—typically just the property’s value. However, with a conventional loan, borrowers are able to opt for a loan amount that allows them to remodel or make updates to the home, or purchase furnishings to fill the new space. Once a borrower qualifies for a conventional mortgage, the restrictions are much looser compared to other types of home loans.
Conventional Mortgage FAQs
What is the difference between being pre-qualified and pre-approved for a conventional mortgage?
When a prospective borrower is pre-qualified for a home loan, that means they have shared their baseline financial information (debt, income, assets) with a potential lender, and the lender has given them an estimate of the maximum amount they can qualify for in a home loan. However, the actual loan application process has not yet started. Getting pre-qualified for a home loan can typically be done over the phone or internet and is usually free of charge.
When a borrower is pre-approved for a home loan, the specific loan amount for a home loan is determined for them before they find the actual home they want to buy. To determine this, the loan is underwritten and the lender is then committed to loaning that specific amount. When a prospective homebuyer is pre-approved for a loan, they know for sure which homes are in their budget, and it’s an attractive quality to sellers since the seller already knows the homebuyer is pre-approved for their loan. Pre-approval usually involves an application fee, and the lender will run a financial background check and credit rating.
What are the typical closing costs of a conventional mortgage?
Closing costs for a conventional mortgage range between 2–5% of the total price of the home. These closing costs traditionally include loan origination fees, underwriting fees, title search fees, title insurance, lender fees, credit report fees, loan discount fees, the appraisal, and other miscellaneous fees.
What documents will be required to qualify for a conventional mortgage?
When applying for a conventional mortgage, borrowers should be prepared with copies of their driver’s license, two years of tax returns, two of their most recent pay stubs (including their year-to-date pay), two recent asset documents, a copy of a current mortgage statement if applicable, and their insurance agency’s contact information.
What credit score do I need to qualify for a conventional mortgage?
Credit score requirements for conventional mortgages vary by lender—there’s no national standard—but most lenders seek out credit scores of at least 620. Some lenders may accept credit scores of 580 if other factors prove the borrower to be fiscally-able.
The reason for the higher credit score standards for conventional mortgages is due to the fact that they’re are not government-backed (unlike VA, FHA, USDA loans), and lenders are on the hook for unpaid debts if the borrower defaults on the loan.
Have a question or want to talk with a Conventional Mortgage lender?