Conventional mortgages

Conventional mortgages


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    Conventional mortgages 

    A conventional mortgage is a home loan that’s not insured by the federal government. There are two types of conventional loans: conforming and non-conforming loans.

    A conforming loan simply means the loan amount falls within maximum limits set by the Federal Housing Finance Agency. The types of mortgage loans that don’t meet these guidelines are considered non-conforming loans. Jumbo loans, which represent large mortgages above the FHFA limits for different counties, are the most common type of non-conforming loan.

    Generally, lenders require you to pay private mortgage insurance on many conventional loans when you put down less than 20 percent of the home’s purchase price.

    Pros of conventional mortgages

    • Can be used for a primary home, second home, or investment property
    • Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher
    • You can ask your lender to cancel PMI once you’ve reached 20 percent equity
    • You can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac

    Cons of conventional mortgages

    • A minimum FICO score of 620 or higher is often required
    • You must have a debt-to-income ratio of 45 percent to 50 percent
    • You’ll likely need to pay PMI if your down payment is less than 20 percent of the sales price
    • Significant documentation required to verify income, assets, down payment, and employment

    Who should get one? 

    Conventional loans are ideal for borrowers with strong credit, a stable income and employment history, and a down payment of at least 3 percent.

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